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tv   Politics Public Policy Today  CSPAN  December 9, 2011 2:00pm-8:00pm EST

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-- as it was before. the president believes that in general labour and management should find ways to work together to perverse -- to preserve and create jobs and were glad there is a reservation -- a resolution. >> the president is lobbying for the containment of terrorism suspects. can you tell us how his the pern all efforts are going? >> with regard to the defense authorization bill, the opposition is the same. we continue to discuss this with members of congress. our position has not changed. it is important that our counterterrorism folks have flexibility in dealing with doing their jobs effectively. there is a range of people in
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this field from previous administrations and the current one who believe that flexibility must be maintained. >> can you give us any updates on how that effort will win over-? minds? >> we are continuing in the effort. >> what is your reaction and what does the president think about? >> this is a sign of progress. the opposition has not changed. we are offering our advice and counsel. we have a great deal of experience in this kind of situation. secretary geithner has been
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engaged in this. the president has been engaged with his counterpart. it is a european problem that needs a european solution. be to act they'd conclusively and decisively to be solved -- they need to act conclusively and decisively to solve it. i will not commented beyond that level of specificity. we will keep it up and deal with remaining issues including insuring a fire wall is built that is adequate to the task. >> will be president talk to those leaders in the coming days about this? >> i can safely predict the
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president will be talking to european leaders including prime minister cameron, president sarkozy, and chancellor angela merkel. i do not have any details for you at this time. cheryl? >> top republican leaders had introduced a payroll extension. will the president to be told that bill? -- veto that bill? >> i have a statement to read to you. 160 million hard-working americans. republicans in congress are still playing politics at the expense of middle class families. their proposal breaks the bipartisan agreement on spending cuts we reached just a few months ago and makes harmful cuts and a class security. it seeks to put the burden on
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the working families and gives a free pass to the wealthiest and protect their loopholes. instead of finding a balanced approach that will pass, republican leaders in congress are choosing to refi old political battles over --health- care refigh -- refight old political battles over health care. as one republican said, the fact that the president doesn't like it makes me like it even more. that is precisely why americans are fed up with congress. this should not be about scoring political points against the president. it is not about him. it is time for congress to keep its word and do its job. its word and do its job. there are pieces of its that we
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have supported in the past. the proposal in its entirety is objectionable for the reasons i just explained. it is what people hate about congress. it worked all summer and they get to this deal that was a compromise. it was not entirely what we should have gotten. was not the grand bargain. ever since, all we have heard from some folks in congress is, we ought to break that agreement. we did not mean it. the scope back on our word. no wonder people give congress 10 percent approval ratings. that is a problem. asking middle-class americans who need assistance with education and who benefits from
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key investments to bear the burden of this deal is punishing the people you are trying to help with the middle-class tax cut in the first place. reopening old political fights. every organization here that does polling will tell you that americans do not like reopening -- let's go refight the health care battle when we have 22 days before their taxes go up. that is the battle some in congress want to have right now. they want to have fights over an oil pipeline that has nothing to do with whether or not americans on average should see their taxes go up $1,000 in 2012. that is what gives washington a bad name. we keep working toward finding a
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solution. what the president has said and what i have said on his behalf is that we are open to looking at other ways to pay for this. they have to be economically responsible and fair. we will continue to do that. the president has put forward a .ay to pay for it they are broadly supported by the american people. there are avenues that are billable for reaching an agreement. for the sake of the american people, we hope that agreement is reached. the president said yesterday and last week that we will insist congress stay here and he will stay here through christmas, if necessary, to get it done. it is not good to raise taxes on the american people at this time in our recovery. eness prevails here.
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>> the unemployment insurance extension is abbreviated under the plan. are you open to that? >> i will not go through the elements of what a compromise might look like. the taxes in this proposal are objectionable. unemployment insurance is a good example of something that people everywhere agree is highly beneficial to economic growth at a time like this. it is assistance to people who desperately need it. it goes right back into the economy and result in job creation. everyone agrees on that. why shortchange those americans who need that assistance and reduce benefits that most help the economy so that we can help corporations and their loopholes, just so we can not have to ask millionaires and
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billionaires, not small businesses, to pay a little bit extra. ? that is wrongheaded. i will not negotiate the details of this provision. the principles that are guided the president are important to enumerate and vp. -- and repeat. this is about helping the economy and helping the american people. people. >> is that an indication that there might be will go rome? -- wiggle room? >> i am not going to negotiate the individual elements. it is important that the overall package to meet the standards the president has said. those standards are about making sure what we do here has the maximum amount of benefits
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possible for working americans, folks who need a tax cut. it should not be loaded up with measures that are designed to refight old political battles. that does not seem unreasonable. that does not seem unreasonable. >> prime minister putin said secretary clinton incited unrest in russia and she gave a signal in the context of resetting relations with russia. >> as you may know i addressed this question yesterday. secretary clinton spoke to this. i spoke to this. the united states and russia have many common interests. the president is pursuing be reset we were able to get and a number of things done with
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russia. our relations have improved. we continue to seek opportunities for cooperation with russia based on your toe respect and our common interests. we have sought to deepen our relationship with russian civil society and organizations to promote the values. we support democracy. speaking out in the support of democracy should not surprise anyone around the world. that is a hard and fast position of this administration and this country. and this country. we are encouraged by president meant the death -- president medvedev. >> he said communication between
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the white house and the decision making process -- there is communication. can you elaborate on that? what do you say to women who are strong supporters of the president in 2008 saying they may sit this election out? >> let me go to the first part of your first question. broadly, with these kinds of decisions, there is communication between the white house and an agency. i do not have a list of communications between the white house and hhs on this. it stands to reason that there were or might have been. the president did not intervene. he did not get involved in this decision. this was a decision made by secretary sebelius. it is a decision he supports.
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that is the answer to the second part of your question. decisions we make at this level of government and that secretaries of agencies make and the decisions and president has to make are not easy. there are always arguments on all sides. that is why they end up on a secretary's desk or a president's desk. the secretary made a decision and the president supports it. >> what do you make of the videotape that was released a while ago? how has the white house been involved? >> the administration monitors
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these things. we have worked on his case since he disappeared. we have received indications that he is being held in southwest asia. anyone with information that might lead to his safe return, should contact the fbi or his family. there is a website. this is an ongoing investigation. that is all i can say about it. >> two other american hostages. is the u.s. negotiating with terrorists or hostage-takers? >> i am not sure what the basis of that question is. i have no more to say about bob.
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that is all i can say. >> the payroll tax cut extension. you mentioned we are looking at ways to pay for it. i know we have gone over this before. the president would be willing to sign an extension that does not include a tax increase on millionaires, corrects? >> i will not negotiate what provisions have to be in or out. there are principles that need to be observed. it makes no sense to pass into law a payroll tax cut for working and middle-class americans and have it paid for in a way that hurts working middle-class americans. that is bad policy. the president would not support that. >> i am just curious now.
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the president is willing to sign a two-year extension of the bush tax cuts. you continue to push the door wider open to allow a tax cut that does not include millionaires. what are you not willing to give up? >> it bears remembering that last year, the president and congress reached an agreement that included an extension of the bush tax cuts. the only deal that was available to the president included extending all of the bush tax cuts. he was for extending the 140 which tax cuts. the-he was for extending -- he was for extending the one for
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the bush tax cuts. he does not want to see americans' taxes go up $1,000 next year. >> he is making big speeches about fairness and asking the wealthy to pay more. what actions is he taking to show he is standing on that principle? >> you are projecting into the future something that i have not said. all i have said is that i will not negotiate the particulars of the agreement. the proposal the house republicans put forward is not acceptable for able writing of reasons. it violates the budget agreement we reached in august, which brings us down to the lowest level of non-defense discretionary spending,
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substantial discretionary spending cuts. he is not going to accept a deal that puts the onus on the middle class and working americans who we are trying to help with this tax cut. republicans refused to at corporations or the wealthiest to pay a little bit extra. these are important principles that go to the heart of why we are talking about cutting taxes for middle-class americans. >> why doesn't the president issued a veto threats that he will not sign an extension? >> there are a lot of unknowns in terms of how this end game will play out. he has made clear what he will not sign and what he will reject. senator harry reid has made
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clear this thing has no chance of getting through the senate. the congress needs to sit down to serious business to ensure that they will not go home having to explain why they have just raised everybody's taxes. the president will adhere to his principles and make sure this gets done. >> the 1% of small businesses that would be affected by the tax on millionaires -- which the president be willing to support senator claire mccaskill's provision that would subject that 1% of small businesses to -- >> rather than me talk about a compromise that does not exist, i will go back to what i said how thin a read that is to oppose what the american people broadly support.
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the less than 1% of small businesses that might be affected by asking millionaires and billionaires to pay a little bit more includes a broad definition of small businesses. it includes law partnerships and hedge fund managers that file business income as personal income. these are not mom and pop businesses. partnerships. sub-chapter-something. yes. i did not take the accounting class. victoria? >> 30 al qaeda leaders were takinen all of the playing field in response to questions. is that game on at the beginning
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of the campaign? >> he acted as an accuser in the conduct of his foreign policy. let us know if you get an answer from those gentlemen. >> i was in here yesterday. i am sorry if you have covered this. as the president issued a directive on the situation at dover air force base? to you know what i am talking about? >> i have seen the news reports. i have not spoken with him. i think the department of defense is taking questions on this matter. >> leaders expressed their intentions to contribute to the imf. does that include al qaeda
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contributions to the imf? >> the imf has substantial resources. american taxpayers are not going to have to make any more commitments to the imf. ken? >> on china, the president has been urged to make a statement asking for the immediate release of the chinese dissident. will the present make such a statement? >> i have not seen that. >> attaching the keystone xl pipeline to the payroll tax cut. i am interested to know why you want just issue a veto threat?
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>> i think the president's language was clear on what he would accept and what he would reject. this is adding extraneous ideological -- >> can we take that as a threat? >> i do not issue veto threats. i would make the broader point. why do republicans think they are doing president obama a favor by going along with payroll tax cuts? why do they think it is the right move for their constituents to try to exact a political price by adding extraneous things to what should be a simple matter. do you want americans' taxes to go up next year or do you want to reduce them? they used to be for tax cuts. jim jordan said the fact that the president does not like it means he likes it more.
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maybe president obama should come up and say, i am against investment in infrastructure and i am not for the payroll tax cut. maybe the republicans will support these things. >> you discussed yesterday what putin called meddling in his country's upstairs. what does our $9 million buy us? >> broadly, the united states supports efforts to help democratic organizations and democracy around the world, as we should, as the administrations of both parties have. the we back to that point, i will say affirmatively that the number of years -- the number
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the state department put together is the correct number. no one should be surprised that we speak out for and work for democracy around the world. we think it is the right thing. aid to opposition groups? >> all we are about here -- look at the middle east and other parts of the world. ports of democracy and holding those who participate in the democratic process around the democratic process around the world to standards of action as opposed to rhetoric. renounce violence. vow to protect minority rights. participate in elections. >> going back to china for a moment.
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analysts have said china might halt the depreciation of its currency. president obama met with the president of china and urged him to not manipulate the chinese currency. is there concern his words may have fallen on deaf ears? >> i have nothing to say about that. we have made clear our position on this issue and why there has been modest progress. it has not been enough. that continues to be our position. we raise that issue with chinese officials each time we meet with them. them. beyond that, i do not have anything. >> will the administration take any action? >> i do not have anything new for you on it. >> the unemployment rate has
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fallen to the lowest rate in three years. what do you make of the numbers? what do you make of the numbers? >> we do not overreact to good news or bad news. we work on the things we can control. there have been some signs of progress. there is no question that over nine straight quarters, the county has been growing. county has been growing. there are other signs of progress. we are a long way from where we need to be. that is why the president is so focused on the provisions of the american jobs at. he is focused on getting the payroll tax cut extended so that americans do not have their taxes go up on january 1.
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he will continue to fight for the programs within the american jobs at that have not succeeded thus far, including investment in infrastructure that will put construction workers back to work. that is why he will continue to push for and will urge republicans to take up his plans for sensible balance medium and long-term deficit reduction. it will put this economy on solid ground for the future. we have a lot of work to do. modest signs of progress notwithstanding, we have a lot of work to do. chris? >> rick perry has taken it upon himself to attack the president on his lgbt strategy. as the president decided to address lgbt abuse overseas?
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there is a widespread ad on the internet. does the president of debt to accusation that his lgbt advocacy is against his faith. ? >> the president is a man of faith, as you all know. our record on lgbt issues is something you are all aware of. >> the president acknowledged the price -- the progress the europeans are making. he said there is a shorter term crisis that needs to be addressed. the european central bank sent a signal that it is not willing to step in in a decisive way in terms of -- does the president
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think the europeans need to step up on the issue of restoring market confidence? >> he believes the europeans need to act decisively and conclusively. putting aside issues of the market, on a plan to resolve this debt crisis. that includes insuring that a fire wall is up to the task and is constructed. having said that, the president understands these are hard issues. he should know. he knows there are difficult decisions european leaders have to make as they work through these issues and deal with the
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problem conclusively and decisively. he does not imagine any of this is easy. leadership is not easy. leadership in difficult economic times is not easy. the decisions leaders make in those circumstances are often not popular. he gets that. he knows it from experience. needs to be done. that is why he has offered his advice and counsel. that is why he is in regular contact with his european counterparts. secretary geithner is in regular consultation with his counterpart as well as other officials across our government. we will continue to work on this with our european allies and friends as they move toward conclusive and decisive solutions to this. >> the question is whether they will muster the political will.
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has he seen evidence that they will muster political will? >> we have seen european leaders take some important steps. progress has been made. he will consult with them and invites them an offer our advice. he will urge them to take it continues steps necessary to finish the job. >> when you talk about the defense authorization act, you point to november's 17th. -- november 17. there is a fundamental constitutional question. does the president think that the military or the commander in chief should have the authority
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to have u.s. citizens arrested on american soil for an indefinite time without a trial? >> i feel like we have addressed this issue. this is a broader discussion be administration has had. the president engage in a campaign. our objection to the legislation is well established, especially with regard to the limits on the flexibility. i am not going to get more broad than where we have been on this specific piece of legislation. >> it is one of the most complicated issues president should have to face.
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whether an american can be arrested -- >> i did not have anything to say to you right now. our broader position on these issues is pretty well known. >> to follow up on that question, when the president said he would reject efforts to tie the keystone pipeline to the payroll tax cut, does reject mean veto? some of our colleagues said it did. it is not clear to me. >> reject means reject. he thinks it is rejection- worthy. senator reid has said this thing has no chance in the senate. there is not a viable bill over which to issue a veto threat.
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the issue of adding that kind of thing in that way -- the effort to jam through a decision that should be part of a process that is enshrined in many decades of precedent -- there are proper bedews necessary to make sure all the criteria are evaluated and all of the impacts are taken into consideration. that is important. >> the week ahead. what a week it will be. this is the schedule for the week of december 12, 2011. the president looks forward to welcoming the iraqi president. the two leaders will hold talks on the removal of military forces from iraq and our efforts to start a new strategic partnership between the united states and iraq.
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the president honors the sacrifices and achievements of all of those who have served in iraq and the iraqi people. this is a promise for an enduring u.s.-iraq friendship. on tuesday, the president will conduct interviews with local television anchors across the country about the end of the war in iraq and the importance that taxes will not go up next year. the president and the first lady will travel to fort bragg, north carolina where they will deliver remarks to troops. the president wanted to speak directly to the troops at fort bragg and to members of the armed forces everywhere. he wants to talk about the sacrifices and achievements of brave americans who have served in the iraq war and he will speak about the milestone of bringing the war in iraq to an end.
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like many military installations across the nation, service menders -- members in fort bragg have brought great pride to our country through their service. the president will deliver remarks at the union for reformed judaism. that is your week ahead. >> are they going to arlington? i heard they might stay a week in arlington. >> i have nothing beyond what i shared with you. mindless reading of the week ahead. -- my reading of the week ahead. thanks, guys. [captioning performed by
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national captioning institute] [captions copyright national cable satellite corp. 2011] >> now a look at what is coming up on capitol hill. congressional staff will be working this weekend on a year and spending package to keep the government funded through september. the package is to be presented to congress early next week. temporary spending runs out on december 16. next week, house republicans plan to extend the peril tax cut. the senate will begin with state department nominations before returning to spending and the tax cut extensions. you can follow the house live here on c-span and the senate on c-span 2.
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>> have no health care. that is the most single element. have no environmental controls and all pollution controls -- no pollution controls. if you care about nothing but making money, there will be a giant sucking sound going south. >> ross perot made two attempts for the presidency, the first time getting over 19 million votes. more popular votes than any third-party candidate in history. he lost, but he had a lasting influence on american politics. he is the last candidate on "the contenders." >> why could the congress, as a matter of its appropriations
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power, give the supreme court the mandate that they be installed? >> mandating that they be used in troops into the power of the court on how to conduct its intrudes into the power of the court on how to conduct its own business. >> find that hearing online at the c-span the video library. you can learn more about the issue on our special web page. see articles and editorials from across the country. you will also find a link to the c-span youtube playlist which members talking about cameras in court. >> former new jersey governor john course i appeared before
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the house agriculture committee -- corzine appeared before the house agriculture committee. he apologized and said he is distressed over what happened. a court-appointed trustee also testified that as much as $1.20 billion in customer funds could be missing. mf global filed for bankruptcy on october 31.
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>> these tools allow businesses to reduce the volatility of providing goods and services to consumers. customer fund segregation has been severely and suddenly called into question. on october 31, 2011, mf global filed for bankruptcy after revealing that investor funds were missing. there are now reports that as much as $1.20 billion may have disappeared. dozens of my constituents have been left not only without their
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property, but also without answers about why and how this happened. i know my colleagues have heard similar stories from constituents who now lack confidence in the system that served them well for many years. today, this committee will examine the bankruptcy of ms global from the start. i would like to make it clear that our intention is not to sensationalize the bench that is unfolding. we are not here to point fingers and place blame. we take seriously than we have asked the relevant regulatory organizations to appear before us. it is critical this committee shed light on the circumstances
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revolving around the bankruptcy and to dispel much of the confusion and misinformation that exist. it will put us in a better position to restore confidence in future markets. this is the objective of the hearing today. to that end, last week this committee took extraordinary action to compel witness testimony that is essential to understanding the whole picture in building a comprehensive record. i assure you, both the ranking member and i did not take this action lightly. it is important to stress that this hearing is not a check the box exercise. this committee will continue to monitor the investigation into actions and work to
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make sure customers receive fair treatment throughout this process. thank you. i look forward to hearing from our witnesses. i will turn to the ranking member for his comments. >> good morning. thank you, mr. chairman. the purpose of this hearing is to reduce the bankruptcy of mf global, the biggest bankruptcy in history. customers in agriculture were affected by the collapse. it is important that we hear from all those involved to find out who knew what and when they knew it. the committee has held plenty of hearings about problems that may or may not occur regarding the implementation of dodd-frank. given the serious problem that certainly exists for thousands of future customers of mf
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global, it is important that we refocus our attention. the collapse of 2008 and the passage of the historic financial reform legislation, it is pretty amazing we are in this situation. it appears to me that nobody has learned a thing about what is going on here. wall street is operating as its 2008 never happened. from all accounts, mf global was leveraged 37.5 to 1. ironically, it is possible there is nothing in dodd-frank that would have prevented mf global's by a mental collapse. we should tread cautiously
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before rolling back dodd-frank's protections. we should be talking about strengthening dodd-frank, not weakening its. the refinement of firm bankruptcy's over a three-year bankruptcies a- -- over a three-year period is not something that should be repeated. wall street, not content to sully its own reputation, is now violated the supreme law, which is protection of customer funds. the futures industry helps farmers and manufacturing companies and a host of other companies mitigate risks so they can go on growing and making things that make this company -- this country run. we need to get to the bottom of
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what happened to restore the confidence that has been greatly shaken. we cannot let one countries succeed in undermining an industry that has operated safely -- that one company succeed in undermining an industry that has operated safely for decades. do we blame the police officer in the day after our house it's broken into? of course we do not -- the day after our house gets broken into? of course we do not. if these members had their way, the commission would get even less funds than they do now. this rush to judgment fails to take into account how the self regulatory system works and, in my view, under my id.
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undermines it. of themittee's oversight futures revenue market is a responsibility i do not take lightly and members do not take lightly either. on these issues, the committee will work across party lines. when it comes to matters affecting the financial health and stability of our country, have no place. that is not something the presses used to seeing from congress. it is how we do things on the agriculture committee. we are focused on the facts. the facts will tell us what happened, who knew about it, and who was responsible. only by uncovering the facts can we address what happened. that is what this hearing is all about. i want to thank the chair for
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working with us to hold this hearing. i hope today's witnesses will shed light on some of what was happening at mf global. i also want to thank the witnesses for being with us today. i thank them for answering questions. >> i would like to welcome our first panel of witnesses to the table. from the future trading commission in washington, d.c. commissioner summers, please begin you are ready. >> good morning, chairman and other members of the committee. thank you for inviting me today to discuss the mf global
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bankruptcy. i understand it severe hardship this bankruptcy has caused customers of mf global. these customers correctly understood the risks of trading futures and options. they never anticipated their segregated accounts were at risk of suffering losses not associated with that trading. many customers have reached out to me and my staff directly. we are doing everything we can to get as much of their money back to them as quickly as possible. i have made that my number one priority. the commission has dozens of staff members including attorneys and investigators in new york, chicago, and washington, d.c. working on these issues. in a sleigh unable to discuss matters that might compromise the aunt -- i am unable to discuss matters that might compromise the investigation. i will get to my comments around
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the legal investigation of merchants. as i understand the securities protection act of 1970, the sec has the authority to refer a broker-dealer to the securities investor protection corp. is there is reason to believe the entity is approaching financial difficulty. there is a liquidation procedure to protect customers when statutory criteria are met. in this instance, the liquidation was initiated on october 31 with the support of the cftc and the consent of mf global.
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there is one duly registered entity in the entire a liquidation. because there is one entity, it is not possible to initiate a separate bankruptcy proceeding. it is important to note that when there is a liquidation proceeding, the relevant provisions and protections of the bankruptcy code, the commodities exchange act, and regulations applied to customer commodity accounts just as they would if the entity or not in a bankruptcy proceeding. the commission is no stranger to bankruptcy. lehman brothers is one of the most recent period their bankruptcy was -- the number others is one of the most recent.
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commodity customer accounts were wholly intact. they contained all open positions and all associated segregated collateral. customer accounts were transferred with the commodity customers having no further involvement in the bankruptcy proceeding. unfortunately, that is not what has happened at mf global because the customer accounts were not intact. customers have priority in customer property. this includes, without limitation, segregate its property, bro that was illegally removed and property that is no estates.n the debtors' it the customer property is
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insufficient to satisfy the claims of customers, a commission regulation allows the other property be classified as customer property to make up any shortfall. an affiliated entity would not unless customer funds could be traced to that entity. all positions of customers' trading on u.s. commodities futures markets have been transferred. we hope there will be a top off to 2/3 of commodity value. we understand more must be done. fcm is authorized to invest funds that are in customer
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segregated accounts. this is done in section 4d. the commission finalized changes on monday of this week. those changes just reinforce the long held the view of the commission that customers' segregated funds must be transferred in a manner that preserves their ability -- their availability to customers. regulation 1.25 is a general prudential standards requires all investments be consistent with the adjustments of preserving principles and maintaining liquidity. while the fcm is permitted to invest customer funds, the value of customer segregated account must remain intact at all times. if customer funds are transferred out of the
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segregated account to be invested by the fcm, the fcm must make a simultaneous transfer of assets into the segregated account. the fcm cannot take money out of the segregated account, in best its, and return it to be segregated cap at some -- invest it, and returned it to the cab ategate to the some time. commissioner regulations require that the customer be provided with a wrist disclosure statement as centers -- risk disclosure statement. notifyo require fcm's to us immediately of instances of significant margin calls. while our current focus is
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returning as much money as possible to the customer, we are expending an enormous amount of effort to locate the missing customer funds and pursuit the enforcement investigation. all of the information we learned during these aspects of our work will be relevant to the commission as it considers lessons learned and any policy responses for regulatory changes. the commission has a great deal of work ahead to get customer funds back where they need to be, to determine whether to prosecute any violations of the act, and to determine what needs to be done to prevent a similar circumstance in the future. commissions that is coordinating on these issues with other regulators, internationally and domestic. we are also working with pacific trustee to provide whatever
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assistance is needed. i appreciate it continues support of this committee as we move forward in this important work. thank you. i am happy to answer any questions. >> thank you, commissioner. >> thank you, chairman and members of the committee. thank you for inviting me to testify today about efforts to identify, preserve, and returned assets to former customers of mf global, inc. i am lead counsel to the court appointed trustee for mf global, inc. under the securities protection act. by statute, the trustee is the customer's advocate. the trustee's staff, which
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includes legal experts, consultants, and forensic accountants, is focused on looking after the interests of customers and return the assets to them as quickly as possible in a way that is there and consistent with the law. the trustee appreciates the interest of this committee. we have been working closely and continuously with the securities investor protection corp., with commissioners summers and the commodities futures trading commission, with the securities exchange commission and other industry members and industry groups. the trustee and everyone working with him understands the frustration of many former mf global customers. when a broker-dealer sales and the unprecedented circumstances, the liquidation is necessarily
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complex. the office of the trustee has been working tirelessly with speed and diligence to marshal customer assets and find ways to return them to customers to the full extent of our ability under the applicable sipa, a bankruptcy code, and cftc regulations. we were pointed through expedited court proceedings in less than two days of have already been approved by the court and with consent of the cftc. we-treated $2 billion of property. we have a hearing in bankruptcy court tomorrow where we're asking the court to approve the transfer of an additional $2 billion that should bring everyone with commercial
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commodities position to the value of slightly less than 66% of their value. we are up and running with claim forms on the site and also can be sent by mail. claims are being filed and revered as we speak. as part of the statutory limit and dated today, because the is also -- the custodee is also looking at what should be set aside. investigation is ongoing and the trustee is not yet in a position to make any definitive conclusions. however, he has determined that even if he could recover everything available at u.s. depositaries that there would be a significant shortfall.
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at present, the trusty believes that the shortfall, based on everything he looking at across the entire business, maybe as much as $1.20 billion or more. the trusty felt obligated to share these numbers and explain the uncertainty around them, first to the court supervising the liquidation and then to the public through the website. it is the trustees hope that the shortfall number will come down, but no matter the final amount of the shortfall comes under any of the estimates that have been made, it is significant and substantially affect the trusties ability to make a 100% distribution to former mf global customers. firmer complicating, assets located in foreign futures are, or should be, under the
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foreign investigators. recovery may be uncertain and may take more time. of the office of the trustee has made every effort to communicate directly and frequently with customers through the website, mailings, and frequent meetings. in closing, you can be assured that the trustee and his staff are pulling committed to returning customers property as quickly as possible and in a fair and equitable manner that complies with all law. >> thank you, mr. koback. commissioner, it has been made clear that warning signs in the weeks, if not months, leading up increased exposure in foreign
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sovereign debt and other capital. was the cftc aware of these warning signs? >> mr. chairman, the investments in foreign sovereign debt would be on the broker-dealer side of that business. the types of reports that we received from them, we were receiving daily segregation reports from mf global lan they did not raise red flags for us until right before the bankruptcy. >> it is fair to say that the first time you were made aware is right before the bankruptcy. who is responsible for monitoring them? the cftc, the nra, who monitors the accuracy? >> an fcm it would be required to compute and keep a daily segregation records in the
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cftc's or the sro would be able to come in and looked at them. the daily segregation reports were sent to the cftc and dsro. >> the daily reports were prepared and the mechanism by which to verify the accuracy, how was that done? >> he would have to go back to the bank records to make sure. the daily reports would compute how much of a customer segregated money was required to be there and how much was actually there. >> so on a day-to-day basis, we take their word on what they say they have in the account? >> that's right. and allows on self reporting and they are required to report to the cftc if they are ever under.
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>> once again, remind me of what the cftc did to protect those customer accounts leading up to the bankruptcy filing. >> we were reviewing the daily segregation reports. >> ok. >> mr. koback, you indicated that a potentially there can be of to $1.20 billion in these bonds not accounted for the present time? >> that is the best estimate today, chairman. >> that is a substantial sum of money by anyone's definition. tell me this. is the trustee is unable to recover the missing funds, what priority will mf global commodity customers be given in the bankruptcy proceedings? >> i refer to it not as a priority but, with respect to the funds that are there in the segregated accounts, an exclusive right of commodities
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customers, so general creditors, securities, other claimants have no right at all to those funds. there is an in sufficiency, if there are other sources available that we can legally pursue, we would do that, as commissioner sommers has indicated. there are provisions to allow us to do that and provisions that allow for general estate assets to be put into the segregated funds and be available for commodities customers. >> mr. koback, the cme has said this would distribute the assets to make sure that everyone receives at least 75% of their account value. >> the $550 million guarantee really goes to accruing up
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accounts so if someone in a transfer got more than their share that it would be even at the end of the day. we do not think it is enough to let us get to quite 75%. the distribution we are hoping they will authorize tomorrow august to the area of 69%-70%, somewhere in that vicinity. >> i am a country -- a customer cought out in the countryside [inaudible] will i have to wait substantially longer? >> we have been working closely with the cme. if the court approves the transfer, we have a system in place to start the mechanism rowling immediately. some accounts may be more complicated than others. we think -- the cme thanks that the process should take between two and four weeks, depending on
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the accounts involved. >> we have read reports that mf global reports are a mess. is that an accurate description of mf global books and records, a mess? >> yes. i am no accountant, but it is fair to say and as often happens in situations like this where a company gets in trouble and there is a run on the bank, so does speak, and a tremendous volume of transactions over the last weeks or days of the business. it is very hard to sort through all about. especially with the electronics systems, there are lot of things that get entered into the record that may not represent the actual transactions. in that sense, they are a mess. >> if this goes back previous to the final, painful days of this business, should the previous
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autumn have a forced them to clean up their records? >> most of the mess we see is really from the last week or two. again, i am not an accountant. we have deloitte and others working for us to could answer the questions better. i think, frankly, the customer account records for individual customers are actually in fairly good shape up until the end, as i understand it. >> commissioner, any comment? >> there is no real way to overemphasize the complexity here. there are 38,000 customer position accounts. as i understand, some of the primary bank statements are 300- 500 pages long and there are thousands of transactions that have to be traced from beginning to end because we need to know where every penny of the money went. >> my time is expired and i turn to the ranking member for five minutes. >> thank you, mr. chairman.
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i am accountant and i can understand how it could get in that situation those last couple of weeks given what apparently went on. from what i can tell, but mr. corzine's testimony said he was stunned to find out that the customer money was missing. apparently he did not know about it until sunday either. my first question is you have those accountants down there now sorting through all of this. how long will it take before they will be able to find out what happened to this money? any idea, either one of you? 24/ basically working i really cannot answer that question. no one will know the exact amount of money owed to customers until we are through the claims process. that basically began about one week ago when there is a 50-day time, though i would hope that at least at the end of that time we would have a good
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understanding of what the shortfall is and a better understanding of all the reasons for it. >> and you're also trying to figure out to know about it, authorized it, and so one? >> yes, we are. our primary emphasis local is how much money is missing, where did it go, do we have a legal way to go back to it to get it back? there are law enforcement investigations, the u.s. attorney's office, and we do not want to get in the way of those. that is a secondary mission right now to finding out where the money went. >> november 29th, "the new york times" had an article about how some investigators suspect there was a transfer of $200 million from mf global to jpmorgan chase in britain. that may have been the first
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misuse of customer money reported. this and they're looking into whether jpmorgan initially questioned the source of this cash and sought proof from mf global that they were complying with regulations. generally when third parties received money, what is the third part is obligation to confirm or inquire with the axiom whether or not these are customer funds --- with the fcm. if they suspect these are customer funds. and appropriately transferred, what obligation does that party have to report this knowledge or suspicion to the regulator? >> i will take the first part of that question first and will just say simply that if there is any customer money that has been transferred out of the accounts, that is part of what we're working together to find and it will be distributed back
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to customers. the second part of the crash, on the obligations of a third- party, generally, transactions like about one can take customer money output of the segregated accounts and transfer it to pay other debt. that is a violation of the act. there would not be an obligation for the third party. i would not think it would generally come to someone's mind to question. >> as i understand it, these segregated accounts have a different name and so if you are involved in this business, you will understand that if it has that name that it is a customer's account. is their responsibility on behalf of jpmorgan chase?
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did they question that? are you looking into it? specifict aware of the circumstances that you are describing. i would think, in a normal course of business, that there would not be a case for a third- party to ask for some sort of verification. >> i do not know. hopefully you will look into that, because i also heard they were apparently trying to get preference to get the money back somehow or another. i do not know. there is that story out there. hopefully someone is looking into that. the other question i have is if you determine -- and this is for both of you -- in the course of doing this that the customer bonds were inappropriately coming gold or used -- comingled or used, can a person at mf
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global, if they knew, can they be held personally responsible? can the commission or the trusty require mf global personnel responsible for missing funds to use personal assets to compensate for victims who lost their money? >> it sounds like that is a question for me. those are certainly issues that we are looking into. apart from what their liability may be from the criminal side or regulatory side. our mission right now is to see me if there are causes of action, and that is something where first, we have to know, did people do things improperly? if they did, are there legal theories to pursue? that is certainly the kind of thing that we would be looking into, and are looking into. >> ms. sommers? >> from the cftc's perspective,
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they're subject to civil prosecution and there could also be criminal prosecution by other authorities. >> your civil authority, would that just be a fine? >> yes. and >> is there a limitation on how much of the fines could be? could you charge enough in fines to cover this? if you did, could you use that to make good on the accounts anyway? >> it is mind standing that there are a number of different avenues with regards to the authority that we have a for fines. it is $140,000 per violation of the act or three times the amount of the monetary gain as well as additional fines that we could charge for restitution to customers and various other fines. if there are a number of
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different ways we could go in assessing the fine that would be appropriate. >> but that money would not be available to make good those accounts. it would go to the cftc? >> it is my understanding it would go to the general treasury. the restitution would go to the customers, but the fine would go to the treasury. >> the gentleman's time is expired. i now recognize the gentleman from virginia for five minutes. >> thank you, chairman. commissioner, a koback master, welcome. -- mr. koback, welcome. customers of mf global would place bonds, sometimes very large amounts of bonds into an escrow or trust account that would be held there. at the appropriate time, the customer would give instructions to mf global to engage in a particular trade. when they did that, they would take the funding from the
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account and engage in the trade. what has happened is that mf global took the funding without customer authorization and placed them in various types of investments, them -- some of them quite risky like foreign sovereign debt. is that what is at the risk of this? >> i would not want to discuss any of the details that make compromise the and forcing investigations but just to say that generally speaking, yes, a customer would place money in the account with an fcm. they're not allowed to use customer funds, for instance, to make proprietary investments for their own accounts. >> on monday, the commission, after considerable investigation and the liberation, starting prior to this mf global problem arising,
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made changes to roll 1.25 which gives instructions to companies like mf global about what they can do with the funding in that account. is that correct? >> it is correct, but to be clear, when an fcm is using funding to invest in permissible investments under 1.25, simultaneously the exact amount of money has to be put back into the customer account. they cannot take the money out, use it, invested, and then put it back later. >> they have to maintain the funding in that account much like you did a bank account. the bank is using that as collateral will make investments in various things, but they cannot deduct it from the account and put it back later on. >> exactly right. >> do believe the changes enacted by the cftc on monday
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would have made clear the preventable actions or that the actions taken by mf global were not legal had they been operating under the new rules? >> nothing under 1.25 has ever allowed an fcm to use investments for their own accounts. the change men's -- change would never have allowed that. >> what was the purpose of making the changes on monday. what did it accomplish? >> there is a long history there that goes back to after 2008 when the reserve fund broke the buck. since then, the cftc has been looking into an what type of investments should be allowed for customer funding. one of the beginning issues is whether or not an fcm should be
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allowed to put 100% of customer money into one money-market fund, like the reserve fund, so we're looking at a concentration levels and asset best concentration levels, issuer based levels. >> in the restricted their ability to invest in foreign sovereign debt, did you not? >> on monday, yes we did. >> do you think those changes would have prevented went happen with mf global in terms of where they made investments? maybe not how they conducted the account, but in terms of where they made the investment? >> i believe it would be premature for us to assume that what has happened that they used permitted investments that may have been permitted before monday and that is where the money was lost. we do not know that is what happened. >> the money could have been lost. the money could have been
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embezzled. the money could be somewhere the trustee has not yet located. about part of the investigation is not yet clear. one hopes from the best, but looking at this, expecting the worst. thank you, mr. chairman. >> the gentleman yields back. the chair now recognizes the gentleman from pennsylvania. >> ms. sommers, find a standard answer, the cftc was receiving daily reports that indicated no problems at mf global? >> daily segregation reports. >> when was the last cftc audit of mf global and what did it show? >> the cftc is not the front line regulator for fcm's. we do spot checks and other different procedures to review books and records. the audits are performed by the dsro's.
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>> are you aware of the results of the last audit? >> cftc it would review those. >> you do not have personal knowledge? >> i do not. how often? how closely? >> do you given a lot of attention? >> foreign entity that is solely in those types of capital levels, that would be part of our oversight foreign entity that would be a broker-dealer then the capital levels would be reviewed by either the securities or futures cited depending on the higher of the tube, which is what the regulations require. >> to the cftc coordinate with other regulators? did you consult with been rent and the sec? -- with finra and the sec?
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>> i do not know who was consulting with the sec or finra. i was not involved. >> would it be common practice to be involved? >> i think there are periodic meetings that regulators have to review issues in the markets, but i am not sure how often does happen. >> thank you. mr. koback, how many accounts were affected? >> the best number is approximately 36,000. >> how many of them are commodities accounts? >> i am talking about commodities accounts, 300 or 400 active on the broker-dealer side. >> how many had been transferred to a different commuter -- commodities futures dealer? >> assuming they approve the
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transfer tomorrow, we'd except that substantially all accounts should move. there are a number of very small accounts, accounts with less than $1,000, many times just 100 or $200 that may have not been active for a long time. it may not be possible to find those, so weo take may expedite the resolution of those claims in the process. all of the accounts should get to another fcm with something like two-thirds the value of their domestic positions. >> in the transfer has to be reviewed by the trust the? >> we have to move the bankruptcy court, which is what we're doing tomorrow. there are people that oppose the transfer for various reasons, but we're hopeful it will be approved. >> thank you, mr. chairman.
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but the chair now recognizes the gentleman from illinois for five minutes. >> ms. sommers, you're having to take some slingshots from members of the committee that i think our legitimately directed to the cftc but not you personally. i am wondering why mr. gansler is not here today. >> he has recused himself from matters regarding mf global. >> is interesting to me that mr. ginsler has been willing to come in here time after time, but at least the most important to the agricultural community, the most important hearing we have had in years, he chose to send you in for him. i find that, in light of his past filibustering entirely
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unacceptable. when did you first determine -- when did he first determine that he was going to recuse himself? >> it is my understanding he made the decision on november 4th. >> is that because he is a part of this same goldman sachs fraternity that includes ministers of foreign governments in which the governments are invested? mr. corzine, mr. ginsler, all of these people? why did he recused himself? >> i do not know. >> we appreciate you being here, but we find it inexcusable. from the standpoint of congressman johnson, in light of your role of the cftc, i find your absence completely unacceptable.
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>> i wanted to inform the gentleman that i think the thing that precipitated this is one of the senators asked him to recused himself. just so people understand. >> of both of you would yield, i believe the chairman is out of the country today. is that correct? >> yes. >> when and from home did the cftc actually hear things that were expressed as early as june that mf global was undercapitalized fax >> it is my understanding that in reviewing a report submitted to us in august it showed the under- capitalization for july. >> does the cftc have the power or authority to force it firm into bankruptcy. >> we do not. >> what is your authority in that regard? how far can you push the
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envelope in terms of the process? >> prefer or entity that was an fcm only, they would have to initiate the proceedings. >> how often do you examine them? >> the cftc is not the front line audit turned -- auditor. >> was there a point when you audited mf global? >> the dsro would be the want to audit. that would be the chicago mercantile exchange.
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>> can you explain to was, just one i understand when mr. corzine is a year later, what the basis is by which mr. ginsler has recused himself? it the pointer good ones, but i'm not entirely sure with the basis of the recusal is. >> i am not familiar with the basis. he had ever accuse the letter, but that is the limit of my understanding. >> the last question, which is in some ways almost rhetorical, and i think probably everyone in here, chairman, ranking member come i'm not sure you are in a position, but on behalf of that farmers and the agricultural sector, investors all of the country, we need to know how soon begin give -- we can give
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answers back. >> that is our number one priority. we're working closely with the trustee to make sure it happens as soon as possible. >> i appreciate your desire to get that done, but my question is the number of co-ops would ask me to give them an estimate, what could i tell them? they need to buy seed, land, equipment right now for the next crop year. >> people should be getting -- assuming the court approves our motion, another $2 billion short lean which would get them up to 69%-70%. until we recover more funds, if we recover more, we cannot do further work about transfers. we have started the claims process which has a 60-day waiting. we started it on an expedited basis and we are already
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reviewing to determine claims. in the process, "people shouldn't remainder of the money that is available. i cannot really give you a better estimate than that of exactly how long it will take. as it has been noted, some of the accounts are fairly simple and some are very complicated. >> we are all here inside the beltway operation in there are millions of people around the country whose lives depend on what we do. >> we are well aware. >> the chair recognizes the gentleman from iowa. >> thank you, ranking member, having this meeting and i think our witnesses for being here today. the last line of questioning triggered me to ask this question, i guess, to both of you. do you think the cftc is properly funded? >> congressman, what i have said
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all along with regards to the new authorities we have been given under dodd-frank is that it is premature for us to know how much funding we will need. there's no doubt that we cannot implement and enforce dodd-frank without additional funding, but until we are down the road far enough to know who a swap dealer is and what a swap is, it is hard for us to know exactly what type of funding we need. >> i appreciate that. an earlier comment was made that when someone breaks the law or bricks paroles that you do not going after the law-enforcement. i have experienced with that violation. i do not blame law enforcement. they do a good job. i think you were trying to do a good job.
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i am concerned if you have the resources to do the job that we expect you to do, that is a concern and that conversation has been ongoing. in dodd-frank, we seemed to expanded capabilities quite a bit and some have said that my first priority are the producers out there that have this unbelievable capital investment these days, which we will probably say more about in the third panel. how do we give them the tools that they need and how were they protected? that is where you people come in as well. that is a concern. we have a lot of people waiting to ask questions, so i will yield back and probably concentrate on a later panel. >> the gentleman yields back his time. the chair recognizes the gentleman from texas for 5 minutes. to gos. sommers, i want
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back to 1.25. the point was made from the gentleman from the virginia that it prohibited those funds being invested in foreign sovereign debt. is that correct? >> it eliminated foreign sovereign debt as a permissible investment under 1.25, but we did in by petitioners to petition us for example of relief if they choose to do so. >> do we then believe that in the proprietary trading accounts, they were investing their own money in foreign sovereign debt with repurchasing agreements and others, do we believe that money for customers was being invested in foreign sovereign debt as well? >> congressman, i would not be
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able to discuss the specifics of where we believe the money is at this time for fear of compromising the investigation. >> do you have knowledge that the entity was investing customer money into foreign sovereign debt? >> there is no evidence for us to assume so at this point, but it is premature because the investigation is not finished. >> when you're doing the daily reconciliation, all the way through friday, it showed that the customer accounts were holding go on -- were whole. who would determine, from an oversight perspective, what kind of investments that they were investing customer account into? who would oversee that backs >> my understanding is that exxon -- is that the fcm would have
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the authority. the cftc currently does not receive reports to let us know aret individual fcm/s's investing in. >> you also mention that you did not have any knowledge that this entity was having financial problems up until the day of the bankruptcy. is that correct? >> the daily segregation reports did not indicate that for us. >> one thing we were promised was that there would be a tremendous amount of interagency coordination. obviously, this entity has other regulators, the sec, finra. they were concerned about the condition of this company earlier in the year. were they not relaying back to you? >> it is my and spending that we were made aware of the increased
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capital charges on mf global through their focus report. >> mr. koback, i will go to you now. i will stay on this 1.25 question, because i think this is something that will be very interesting to see how it plays out. do you have knowledge that the funds of customers, on behalf of those customers, were being invested in foreign sovereign debt? >> at this point, we have suspicions, but we do not have knowledge. we are coordinating with regulators and law enforcement of the investigation, so i am limited in what i could say. i certainly do not want to do anything that would delay or interfere with ongoing criminal- type investigations. >> obviously the foreign sovereign debt market has been very volatile here lately, so if
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i had $10,000 in mf global and they decided to invest my $10,000 while it was sitting idly, they had to decide to invest on my behalf in foreign sovereign debt and it became a losing position for me. that would diminish my asset value and it would be the responsibility of mf global to then make up the difference of back since they had invested my cash in something? >> they should not have done what you are hypothesizing. >> for liquidity purposes, they can put the money in other areas and one of them as foreign sovereign debt. if they do that, even though they are not on their account, they are doing it basically on mine. if there is a loss suffered because they decided to invest that into something that turned out not to make it whole again,
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whose responsibility is that? >> management's responsibility, whether there is liability or not, i do not know. that is something we would be looking into. >> there are three ways my account can be diminished. i make an investment to lose money, or someone illegally transfers money out of my account for liquidity purposes. the cash management tool they used did not make me whole. is that correct? >> potentially, and probably not just your money, but the money in the pool for customers of that happened. >> of the pool shrunk? >> if i could just clarify that investments in foreign sovereign debt by an fcm are only allowable that they post to the fcm as collateral. it prevents them from having to
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take on currency risk. >> that is an important point. thank you. >> the gentleman's time has expired. we have a series that has begun. i would like to ask the gentleman from california would like to be recognized for five minutes? then we will stay at ease until after the vote series. >> the the cftc coordinate with other regulators leading up to the mf global bankruptcy? for example, did the cftc to coordinate with finra and sex when they forced them to change the treatment of foreign debt? >> that would not be part of our oversight. >> ok. i am looking ahead a little bit. in the written testimony that we have received from mr. corzine, on page 11, it indicates that he
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had a series of meetings in june, or calls, with the cftc, the sec, frina, and it goes on to talk about august 15th when he met with the sec to question finra's requirements to increase their capital requirement and then it talks further about, on september 1st that mf global was still not happy with the fact that they were going to have to increase their net capital, yet they filed the required documents. during bad time, the different agencies involved in this, you were not coordinating at all? >> the increased capital on the broker-dealer side would be something that we would receive
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notice of from the bdfcm. we were made aware of that issue by mf global in a report they are required to file with us monthly. >> earlier you indicated that you did not know about this until a few days before and all of a sudden everything unraveled, yet there were reports indicating that there were problems going on here. >> they were required to post more capital on the bd side, and they did. there reported being under- capitalized for july because of the increase in their capital requirement by fina, they did post. for instance, we may then look at the house proprietary trade on our side to look at the risk exposure that they have to see what kind of collateral they are holding. >> did you look at those things? >> yes, sir.
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>> did you find any shortfalls when you looked at the views of their accounts? >> no, sir. >> our financial system has interests ability protocols. when money is transferred from one account to another, we can trace back, correct? >> i assume that it is true, i guess i should say. >> at this time, can you tell us why we cannot find the money that is supposed to be in mf global's segregated accounts? >> as i stated earlier, i think we cannot over emphasize the complexity of the books and records of am available to. the amount of accounts and
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transactions are enormous. >> i understand, the frankly either we have to be able, as regulators, to do that, or we need to throw up a red flag that these are too complex and we need to do a better job. ultimately, we are put in place to protect the public interest. if we lose confidence in these markets, it will affect our entire economy, not just those who lose the money in a one-time trade. others will not want to go in and invest. >> certainly we are making enormous amounts of progress every day and there is no doubt that we, at the end of the day, of will know where all of these transactions were from beginning to end. that is our job. >> how many companies would you say are engaging in transactions that are too complex for us to understand on a daily basis? >> i do not think they are engaged in transactions that are too complex for us to
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understand. it is just tracing the amount of different accounts and the transactions from one place to another. >> with your agent to be coming forward with protocols that will change and make easier our ability of to trace and understand on a more timely basis? >> there is no down after this is over at the end of the day when we know exactly what happened and that there will be a lessons learned. there will be policy changes that we will want to come to this committee with for your consideration. >> i would suggest that is a good idea. >> the chair would note to the membership we are in the first of a series of four votes. when we return, mr. connolly will be next followed by mr. scott. the committee stands in recess until the conclusion of these boats. please promptly returned. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2011]
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what the hearing of the committee on agriculture for the mf global bankruptcy will come back into session. the chair now recognizes the gentleman from texas, mr. conoway. >> ms. sommers, mr. koback,
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thank you for being here. ms. sommers, when you get these daily reports, with respect to the segregated accounts, you never expect to get one that shows any breach of segregation. is that the norm? >> we do not normally get daily segregation records. >> but if you got them, you would normally see them to be clear that the segregated funds are there? >> absolutely. >> you're relying on the integrity of management and the employees of the fcm to report -- to prepare the reports properly? >> they are required to report to us if they are under segregation, and that has happened. >> so when you get a statement, and then the company itself was relying on thursday integrity of the management and the employees there and the requirements, i assume yours, that internal
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control systems and management systems be in place that drives information to management that is accurate and timely in particular with respect to this segregated deal? >> absolutely. >> of that did not happen, and the reports do not reflect the underlying activity but then a variety of things can happen and we could be subject to conjecture, but suffice it to say that the segregated account had a leak of about $1.20 billion, as we currently understand that number. mr. koback, should the total segregated fund should have been in the $600 billion range? >> so the $1.20 is a meaningful number? >> even here in congress. even $600 million would be meaningful in this situation, yes. >> the variety of investigations
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at this point will look to how that happened. from a management control standpoint, ms. sommers, is a breach of the segregated fund a meaningful breach in your overall regulatory scheme with respect to fcm's? >> extremely serious, and not something we typically see. >> i rolled through a stop sign, that is one deal. if i do something much more severe -- i'm trying to gather were this a breach would fall under the attention of the people that regulate. would they immediately talk about this? >> it is one of the most serious breaches. >> of that is the case, we will hear testimony later on where the witness will say, "i was so far up the food chain that i did
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not get involved in the details come close "but we will ask this later of others as well, but where would the breach fall in terms of importance that upper management should be made aware? >> i am not familiar enough to be able to answer that. on the fcm side, it would be the upper management. as far as the parent company, i would not know. >> you are representing mf global, anke? >> that the broker-dealer fcm. >> what is the name of the holding company? >> mf global ltd. >> is in bankruptcy? >> chapter 11, yes. >> whoever is in charge of the fcm, the breach of the segregated fund accounting, the
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top person there, the one actually in charge in the broker-dealer, they would be made aware? >> i do not know if the cfo had to sign, but we could charge. >> if there was a breach and they fail to notify you, that is a separate violation? >> this is right. >> on the scale of a bad thing they could be accused of doing, breaching the secure accounting concept is at the top? >> absolutely. >> i yield back. >> the gentleman's time has expired. the chair recognizes the gentleman from georgia, mr. scott. >> thank you, mr. chairman.
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let me get right to when i think is a very serious point in this. first of all, i find it very unacceptable that commission chairman ginsler is not here, that he has recused himself, then he has left the country at the very time that we are faced with the eighth largest bankruptcy in the history of the united states on a firm that comes under his oversight were $1.20 billion of our constituents money is missing. where mr. ginsler has a very close personal relationship with mr. corzine and both worked at goldman sachs. it raises a great deal of suspicion. here is my real point. the core of this entire investigation and resolution rests with the application of world 1.25. in that role, it clearly states
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that you cannot co-mingle customer with business accounts. here we have a company and a firm, mf global, who goes out and over-leverage is with the european sovereign debt. you could a rule in that you passed just monday. the first time you put this rollout was in june or july of this year. -- the first time you put this rull out was june. then mr. corzine calls mr. ginsler and you delay the implementation of this role for the implementation of the using customer funds for investing in sovereign debt just three days ago. this is a glaring, glaring example of why the american people are rapidly losing faith in our ability here in washington to get our hands
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around this. i think that at some point mr. ginsler will have answers some questions about what happened here, and it raises questions that i think we need to really answer. could you please tell me why you delayed putting this rule into place after mr. corzine contacted the cftc? >> just to clarify, mr. congressman, and the investments in foreign sovereign debt are reposed maturity investments that have been widely reported are on the bd side of the fcm. 1.25 the regulation that governs what is it permissible
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investment to be able to use customer funding to invest in. 1.25 has never allowed an fcm to take money out of a customer segregated account, invested, and not simultaneously put back the exact amount into the customer account. do >> my time is short. the gist of my question is why the delay after your contacted by mr. corzine on an agreement to prohibit at that point. prior to that point, prior to monday, it was ok to use customer funding. here is a company that went down in 10 months. they moved from $1.50 billion in sovereign debt to $6.30 billion in sovereign debt, which is the cause of their problems.
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you see the connection here. you have a new rule to prohibit that. that decision was made to delay it until now. >> the roll 1.25 would not government what type of investment a broker-dealer would be able to make, whether it is their house or funding. but only governs customer- segregated money on the fcm side. the royal repast on monday would not prohibit a broker-dealer from making investments out of their house account. >> now under this rule it is illegal and you cannot take a customer's money now and apply it to foreign debt. under the rule you just passed on monday. >> eliminated foreign sovereign debt as a permissible investment but allows them to petition us
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for exemption. >> ok. let me ask you this on the designated self-regulatory organization. do you feel that it is sufficient in the wake of this spectacular collapse of mf global? can this model continue to be justified? should not the cftc be conducting some of the audits themselves? do you have the capacity to do so? >> we do reviews of the dsro's to make sure they are performing those audits in an adequate manner. we have authority over the dsro's. if we ever find any deficiencies, they are required to correct them. >> mr. koback, i have a quick question. you have never been an employee of mf global? >> no.
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>> you are employed by the court-appointed trustee? >> of the trustee is a partner of our firm and our firm was appointed be his counsel. >> it is my anders standing --is firm has nearly 204 and f -- nearly 200 mf global staffers? >> we have 175, and they are more of the people that i understood that the accounts where the back office people who processed trades. we hired them temporarily for about three months in order to help with the transfer. >> do you feel this complicates matters to have them on the
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forensic team? >> the witness may answer the question. >> they are helping us to account for transfers. we did the lehman case. a lot of the employees had been hired by barclays. i'm not talking about the big accounting -- and talking about the commodity claims. >> the gentleman's time has expired. >> thank you for cord and there reading this important hearing. welcome to the witnesses. a number of years ago in the wake of the financial collapse due to wall street's reckless behavior, i had met with a group ans, and i askedns
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them, how many of you use synthetic collateralized obligations, and they did not know what i was talking about. i thank them, because our institutions back, did not take advantage of liberalized credit, did not do things out of the lanes, with up to their responsibility, and we have not suffered some of the problems the rest of the country heads. the reason i say this -- i want to quote from an article, a new term, "rehypothecation." the revelations concerning is missing client money suggests funds or not misplaced or call dying hours,al's but were created due to a
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massive manipulation that allow for the wholesale acquisition of funds through rehypothecation. will you explain this, please? >> i cannot explain this. that is not what our investigation has shown at this point necessarily. we are at an early stage and it may be we will find there's money that went to account a and it got rehypothecated somewhere else. >> allow mf global to use its own client funds to finance an enormous eurozone repo bet. >> i think there was a repo on the securities side. >> the issue is segregation of
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client accounts, and now we learn there may be a loophole manipulated to get around this requirement. am i reading this correctly? >> i think it is on the broker- dealer side. we're looking into this. >> its still applies because is funds.ling clients' >> it is on the broker-dealer side. one of the things we're looking at in doing these transactions, commodities were securities funds that should be segregated used. i cannot give you a definitive answer. we have a 60-they claim. . we will know what the amount of the claim, and in that timeframe we will have a pretty good idea of what happened. >> i will speed up some
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questions. who owned mf global? >> are you referring to the broker-dealer company? >> you define it. >> the holding company is now in chapter 11, and an independent trustee was appointed by the bankruptcy court. >> how is it structured co? prior to that it was owned as in the holding company would be. it had management. it owned a number of companies including our entity. it goes to the issue of fiduciary responsibility. in regard to your investigations, if you find
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funds were commingled, will you be able to go after the assets of people who violated public trust here? >> we would have to look carefully at what all says. if there is a theory, we will go after people. >> can particular personnel be held liable >> it depends on the fact and circumstances. that is something that we would be prepared to do if fell law provides for it. >> that gentleman's time has expired. >> thank you, mr. chairman, and i welcome witnesses here today. obviously an important hearing. i do not want to -- a lot of important issues have been raised and i will not go to the same questions. ms. sommers, would like to look
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at the red flags, warnings, things that were missed and understand why there were missed. i understand you correctly, crier to -- prior to recently there were no red flags sent in your direction? >> yes, congressman. the types of reports received, the daily segregation reports would show that segregated funds should be dthere, but we do not look reports to look at bank statements. if it is reported that that money is there, then there would be no red flag for us a. >> i am curious, if they had showed there had been a breach of the segregated funds, what would have been your reaction? >> if they reported to us there had been a breach, they are
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required to come into compliance immediately. >> ok, does that happen much with corporations, or is that a rare thing? >> it has happened in the past. >> and do they come into compliance quickly? >> yes. >> i have read the risk assessment management for mf global had issued warnings they were going into dangerous territory sometime ago, maybe even a year ago, and this person was fired. is that your understanding? >> i have no knowledge of that. >> if this person was the case, is there any way those warning signs would come your direction? >> if that rest officer would contact us to give us some sort of said, that could come our
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way. >> and if somebody sees something going wrong, unless they make that effort, there is no institutional way in which the information would be sent up the chain to you guys? >> not that i know of. >> thank you so much. >> the chair recognizes the gentleman from florida, mr. rooney, for five minutes. >> thank you, mr. chairman. i have some basic fact-finding that questions for ms. sommers. from what i have read, the cftc -- the cftc months prior to the collapse of mf global had been trying to change rthe rule for the type of trading that led to
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the collapse of mf global, to rein in that type of behavior? >> if you are referring to regulation 1.25 -- to clarify, 1.25 only go to permissible investments of customer funds. >> i am trying to get basic information here. the kind of trading that apparently mf global was involved in, repurchase agreement that had become commonplace, your agency was trying to rein that in -- you weren't, as something that was overly risky to investors? >> as i can understand, the investments that mf global was uengaging in was on me b-d
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side. under our rules, it would not permit a broker-dealer from using house funds to invest in foreign sovereign debt. >> ok, so is the opinion of your agency that that kind of activity is not risky and should not be regulated? a lot it is not regulated by us. the u.s. side is regulated by the u.s. securities and exchange commission. >> mr. johnson was referring to e, mr.leman befor gensler, is your boss? >> not my boss, but he is
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chairman of the commission. >> when the cftc was trying to curb certain investment tax like these repurchasing agreements, risky behaviors, i am getting this from the "the new york times" article, months before this happened, there was pushed back from the industry, not just from mf global, but from various trading people that work in this business, and there was pushback, and then mr. corzine was one of the ones that pushed back against your agency, and then you guys backed off because of that effort. is that correct? >> i did not personally have any conversations with mr. corzine. >> what i am trying to get my arms around here, it seems like we have an agency that saw a risky behavior and was trying to
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impose a rule. mr. corzine said back off, and you all did back off, and in retrospect, now your agency is trying to go back in and forced the rule, is too late for the people who have lost their shirt under mf global, but in hindsight you are trying to do it again, so i'm trying to get my arms around the players that were involved and the timeline. >> regulation 1.25 does not apply to the investment mf global may have made on the broker-dealer side out of their house in account investing in foreign sovereign debt. going back and finalizing backs rule is not apply to those investments. >> the article i am referring to, "the new york times"
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article, they do not have a -- it correct? >> i am not aware. >> mf global was an fcm, and they charged commissions to do these trades, and they had disaggregated money and they made money on that. this business is becoming increasingly competitive and it is at the point where they cannot make money on commissions they charge to do these traits great the way they make money is investing customer money. one of the reasons they wanted to liberalize, that this is my interpretation, liberalize that is that they can make more money. when they invest this money,
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when they put it into sovereign debt, they have to put treasury bonds into that fund to cover it, so the customer is not at risk. what happened with fcm, they were losing money, so mr. corzine came in and made them a broker-dealer. the burger-dealers -- the broker-dealers are regulated by the cftc. they started investing in sovereign debt and doing these repos, a leveraged themselves up somewhere between 30 and 37.5 t imes, and they could not come up with a margin, and the firm collapsed. there are two different things. what the commissioner is trying to tell you, cftc does not regulate the burger-dealer side of this.
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i am sure some of my folks back home that did business with mf global for ever -- i do not know if they were paying attention or what, but now that firm became a broker-dealer. you need to split this between what the cftc can do and what they cannot. >> and to distill it further is the money used to offset mistakes made in the security side of the company regulated by a different entity, and that transfer is the legal question, and the question of responsibility that ultimately has to be address. >> if the bottom line, as flanders did it, i have been considering requiring this money be put in a third-party account,
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so somebody else would hold the money instead of the firm. what i have been told, if i did that, i would -- we would bankrupt all of these fcm's. it is like the issue with the banks on the inter-bank fees. if you do this people are prone to have to raise their commissions and people are crying that the pay more money to keep them in business. it is complicated. >> the ranking member touches on several trips for several more hearings. the chair would like to recognize the gentleman from connecticut. >> thank you, mr. chairman, and i appreciate the colloquy which just took place, and would like to reiterate the comments that chair and the ranking member made against the chairman, the chairman gensler.
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it was demanded that he recuse himself because there was a relation with enough global. you can get whiplash to compete with the finger-pointing. what followed a demand from this branch of the government was to step back from this whole question. going to the roll-making process on monday, which he did a nice job in terms of explaining the distinction between wachtell rule apply to and that situation the hearing is today. if you do look at the notice that the federal register post- it after you've voted thought it was unanimous, correct? it stated what the legal source was of that rule was, which was section 939a of the dodd-
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frank act. the legal trigger for the process that the place on monday, according to your own notice, was 939a of the act? >> that was part of it. that section required us to remove references the credit rating agencies, said that was part of what we did in the amendments. >> i ask that question because for the last 11 months, this committee, and the chairman has been here, has been bitterly complaining that you are moving too fast. now today we get another case of whiplash from people who are saying he moved to slow. what i would simply say is what we should do is let you do your job, and also by the way, give you the resources you need so you can do your job.
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as you testified earlier, it may be inappropriate the commission to get more money before you know what the scope of your duties are pursuant to dodd- frank. what we went through in terms of the budget was not about increasing your budget. the house reported occurred gracious to cut your budget by about $30 million, and we are talking about a total budget about $200 million. that is a huge decrease. here we are today with members of congress complaining that you are not doing enough when at the same time it is the same chamber which was to knock the legs out in terms of having the resources to do your job. i can this is a committee that poured it out a bill that pushed back title vii for two years,
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despite the fact that for some of us you are not moving fast enough, but you are using deliberate speed in trying to ingest tens of thousands of commons. there are times when i look at your agency, which in my opinion is so important to the smooth functioning of markets in our economy and a punching bag that you are subjected to from all sides, whether to participate or recused or defund it or not, and then a situation like today, where it is an educable moment about the value of what the cftc prince our country and our economy. i hope all of us will let you guys proceed and do your job and follow the mission in a reasonable, balanced way in terms of what the dodd-frank bill asked for.
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>> the gentleman rackham -- the chairman recognizes the gentleman from indiana. >> i believe for us to get the facts everything that has happened here, every player should be willing to step forward and share with this committee what they know and when they knew it. i believe the buck stops at the top. this situation, i believe mr. gensler should be here, and for us to get to the bottom of this, we could get our answers more quickly, and a trip internationally must have been a more important. the timing is no coincidence. i would like to ask mr.
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korback -- how has that been working? they are in a tough situation with them losing the company that they work for. had you heard from them -- did they see things happening? the kinetic i saw -- and this might be a question for the federal reserve bank -- it looks like according to this company, the company had $41 billion in assets when mr. corzine became deaf ceo in 2010. as early as 2011, were concerns. in february of this year, mf global was designated as the primary dealer in february of
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2011. there seems to be a short time line here that i have a real problem with. flags beinge red thrown up somewhere along the way with as many eysyes that were looking at this company? >> first, it is fair to say our investigation in the short term has been focusing more on what happened on the end, is there missing money, if there is, where did it go, and if we can find out where it went, what can we do about covering it? those other questions about us looking into the arctic question for a later date. the first part of your question about the 175 -- most of those people were systems people and things like that. i do not think they are the ones who would know the answers to these questions. >> had they mentioned they had
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concerns earlier on? >> we have been talking to them and others. one of the first things was to get an order from the bankruptcy court confirming our power to do a thorough and independent investigation. some of the holding companies that i alluded to, which would be one of the groups of people and we would be looking at to recover money, wanted to participate in that investigation, and we filed papers and argued to the judge we did not think that was at all proper, that we were supposed have independent authority, and having some of the very people we might need to investigate looking over our shoulder was not corporate, and the judge immediately, while he was on vacation, i think, wrote an opinion confirming our independence. we're talking to people about the people we employ, but more important, other people.
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some of those people have lawyers and might not allow us to talk to them. we're trying to record make our investigation with u.s. attorney's offices, so in some cases we may need to talks -- hold off talking to a witness until they do their job. >> i ask a question for commissioner sommers. in reviewing reports, were there signs that anything was all wry? could mf global finance the buying power with segregated funds in purchasing sovereign debt? >> the last part of that question -- >> could use segregated secret funds to buy sovereign debt? >> sibley, -- italy, an fcm be
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purchasing the amount of foreign sovereign debt that a customer would have posted to them as collateral. you could do that without commingling. >> anything awry on the daily segregated reports? >> although we reviewed those reports, an fcm is required to report to us if they are undercapitalized, we do not verify that what they have reported to us on a daily basis is absolutely accurate. >> thank you, mr. chairman. >> the next person up as congressman owens of new york. >> your testimony today has indicated that prior to the weekend of the collapse of an f global there was no indication
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in the report, nor was theirself reporting that they were out of compliance. >> that is correct. >> what audit techniques or risk-management techniques or procedures should be in place in order to require that type of reporting? we can safely assume based on the facts we know to date that this is likely a fraud perpetrated by mfg at some level and that it seems to me that we cannot rely on the individuals in this particular instance to self-repor is there some technique you are aware of, a computer program or other audit techniques, that would require these self reporting this? >> they are already required to self-report. >> is there some independent
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school that you could access remotely, if you will, to determine whether or not they have made can and upper free use of their customer funds? h>> in the end it will be a program for us to go back and look to look at every single measure that can be used that prevent this from happening. >> if you discover tools are available, would you be willing to impose those tools on these organizations? >> absolute, and we would come to this committee to ask for changes to give us the authority. >> if this is a serious enough issue, this type of regulation would be epsilon? >> when we are able look like what went wrong, that maybe one of the things we can to change
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in the future. >> i have no further questions. >> the chair now recognizes the gentleman from georgia. >> i share the concerns about money to buy constituents' loss, and how we work together to stop this from happening ever again. ms. somemrse, i would like to get back to the reporting. as i understand it, it is the self-reporting of the segregated accounts, and when i look at the wasy's ratings, this form rated investment-grade less than 10 days before the bankruptcy. that is an indication of how complex maybe these issues are and how hard it is the on wind everything that is on the books of some of these firms like this. getting back to the reporting,
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if we wanted those -- audited those on an unannounced pieces, spot checking, if you will, do you believe that would have been enough of a deterrent to stop this? >> that already happened. checks on anot unannounced basis right now. >> so that is not enough to stop it from happening, if we are doing it right now and it has not stopped it. i will be anxious to know what mechanisms we need to put in place to ensure that the reports we are getting, that your agency is getting, are reflective of what is going on in the form. -- firm.
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mr. koback, what are some of the issues that you think may i rise that would prevent the customers, consumers, from being made whole throughout this process? >> what we are doing tomorrow is asking the court to give us authority to distribute another $2 billion which we think will bring everybody up to around 70%. we have had some opposition to that motion, and there are people who represent the creditors' committee and the holding company case, that would be the creditors of the parent company, not even us, have opposed it on the grounds that it might be taking money away from those creditors, banks, and
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bond holders in favor of commodities customers, and we have a post that vigorously, as you might have imagined. we think it turns the whole statute and our whole proceeding on its head to say that customers do not come before those people. we are getting oppositions that. there are some foreign administrators who are holding funds that are not customer funds abroad that we are not including in this motion, although we will come to some understanding with and eventually and their customers can receive funds. it is just not right now. their big concern was we were not holding back money, and we are holding back money for that. >> if i can interrupt you, because i am bound to a minute. as far as putting customers first with regard to who gets paid first, do you believe the
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statute is clear on that, or is that something this committee should address? >> i am happy that the committee address it. i believe it is crystal clear. i cannot think it is just a priority the way that bankruptcy -- it says customers have exclusive rights to these funds. >> take you for your testimony. i yield back. >> thank you. commissioner sommers, let's talk about lessons learned. what is it that we have not learned from past issues that is so novel in this case that we have to change policy? could you outline the lessons you have learned from this particular case in order to protect customers? >> certainly. we are not used to having a bankruptcy in the futures side that customers lose money, that
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customers segregated accounts aren't outpoll -- are not whol.e the most recent to bankruptcies, even though there were problems with those companies, counts were whole. >> give me a lesson number 2. >> we need to look forward as to if there are loopholes or if there are any parts of our regulations that do not abide for the ultimate protection for customer funds, those need to be changed. >> me lesson number 2. i am looking forward so we can do preventive medicine. give me another lesson. >> it might be premature for me
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to say what the lessons learned are when we do not know what happened. >> but you said there were some lessons learned that would change policy. this is not the first time. i know and iran and the other situations were different. every time -- enron and the other situations were different. how many more situations do we need to have before we get it right? he said lessons learned -- is that the only one you can give me, the post situation for bankruptcy? >> not at this point, and i did not need is just before that we know everything and we know what lessons we have learned. this is going to be something we will be comprehensive about, but we do not have all the facts. >> could use of that that to the chairman of the ranking
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committee, any lessons learned the only thing we have learned so far was better protection of the bankruptcy situation. >> for customer funds. >> this question is for mr. koback, is this a straight bankruptcy? to the bankruptcy laws apply to creditors, and that is were the creditors are coming in. give us the priority? >> it is a special statute that incorporates to the extent that they are consistent with sipa. says the trustee has the same duty a trustee would have that is a trustee of a straight commodity.
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>> i wish you all the luck tomorrow. so we get the picture of where the customer's fault in this particular situation. >> customer is have rights. they are the so people that have rights and against those funds. the bond holders, banks, may have rights against general estate assets, but nothing to do with the fund. if there are general estate assets, it may be possible to allocate some or all of those to make up for shortfalls in the commodities case. >> let's assume you are successful and that would get the customers up to 69% to 70%? the uc other assets out there that could make the customers hope? >> there will be other
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distributions. we sincerely hope and it is our goal, aspiration, any time we do cases like this to try to get customers to 100%. it would be premature to say that will be the case or not. we do not know. >> weened wish you luck. again, we appreciate it if you can get us those lessons learned. thank you. i yield back the balance. >> thank you. commissioner, can you explain so the i am clear, with the approved regulation 1.25 that you just approved, this is going to be able to prevent mf global passed similar type companies toer the cftc's regulation take those funds and being able
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to put them into foreign investments? is that correct? >> -the way the regulation has been treated up until monday, if a customer or to post a foreign currency -- >> i am talking after monday. >> the regulation eliminated foreign sovereign debt as a permissible investment, invited petitions for exemption. >> and the problem we are having to challenge with right now is an investment with foreign sovereign debt as it relates to mf global? >> there were investment in foreign sovereign debt in the instruments that were on the broker-dealer side of mf global. regulation 1.25 would not speak to those investments. >> even after?
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i think some of the comments, and it is worthy of some note, when we are talking about lessons learned, we have the report mentioned earlier out of the "the new york times," it said mr. corzine and other members of the firm met in july to discuss proposed rule changes. following that meeting, the rule changes were not implemented. is there a problem where we are seeing the commission's judgment being influenced, not by the policy decisions, but by outside influences? >> in my recollection, there were a number of different issues with a proposed rule glass summer. -- last summer. they had to do with in-house repos as well as the concentration levels of money
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market funds, and there were a number of issues we were working through. it was never the intention to never take up the rule. >> in your opening statement, he said it was the long-held view of the commission to be able to get this rule 0.253, but that concern seems to be after mr. corzine's meeting it stopped. >> the rule was already in place. the view of the commission was the standard -- the rule onchanged do monday. >> we made changes. >> i am disturbed that the chairman has recused himself. he is refusing himself from the important matters related to mf
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global and in the matter directly related. does this preclude him from being able to answer questions that led up to bankruptcy in the normal operations of the cftc? >> i am not in a position to tell mr. gensler which questions he should answer. >> your view, is this refusal impacting cftc's ability to address the issue? >> we have dozens of cable staff that had been working on this issue and are doing an excellent job. >> thank you. most of my questions regarding the proceedings of the bankruptcy have been asked by
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other members, but, ms. sommers, mf global, the eighth largest bankruptcy in american history -- do you have any idea if there are other potential bankruptcies out there like this? >> i am not exactly sure. if you're asking whether or not a potential bankruptcy of a very large fcm will be larger than the eighth largest -- >> i am asking, do you have a watch list with you have any idea, are there others out there that potentially might fall in this category, and would you know if there were? >> we had the ability to see the
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futures side of the business. what we are looking at on a daily basis are the investments of an fcm in their customers' accounts and if there are proprietary -- >> that is a watch list. >> there may be firms that closed the margin -- >> is their concern among you and your fellow colleagues, the regulators, that there may be others out there that are in harm's way, more that we have farmers and ranchers around the country -- that is my focus and concern, that agricultural future trading industry that is so essential to our financing short-term and long-term, both domestically and internationally, and i cannot want to see these futures markets destroyed.
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again, my question, can you actually performed the duties as a regulator as a watchdog? >> absolutely. >> but there is not a list? d you think it is something you should be looking at? >> i do not mean to suggest we do not look at firms. we have a team where that is their job, to make sure firms have the appropriate collateral posted with regard to risk exposure. >> de you have the tools and the staffing to do that job? >> we do. >> you have 77 full-time equivalents, as tall as trading advisers, is that correct?
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>> i am not exactly sure the exact amount. >> are your front line auditors and not to do the job -- front- line auditors and tough to do the job > get a handle on whether or not you can be your job, and do you have a sense of this. >> we are absolutely able to do our jobs. we have capable staff that do financial surveillance of these firms that review the statements they are required to send us. we look at yearly audits they are required to send us, we review all of these. >> we have heard complaints that laim process is
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complicated. is there a way we can make it less complicated? >> not unless you limit the amount of transactions. >> should an account -- should be customer use =-- should the county is an account equity when the bulk account transfers take place? >> i think under the cftc rules, you look 2 positions when they were liquidated. if you just had cash in your account, it would be the 31st. otherwise it might be a later date. customers have a problems with its concept. what we are going to try to do is get them statements to show
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where they were on the 31st and the subsequent activity. it may not be 100% reliable, but it is the best we have, and that should allow people to help them. people have had questions. >> my time is expired, but mr. chairman, as we try to determine the fault lines on this effort and what is the proper mix, it seems to me that the potential to have another mf global out there is real, and notwithstanding the testimony, i am not confident you have a good handle on whether or not you are able to provide that insight to us as to who ought to be on a watch list so we are not surprised like this. that is an area we need to work at.
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>> the chair would note the next gentleman is from kansas. >> thank you, mr. chairman. there have been news reports that indicated in the last week of october that customers, clients that requested a return of funds, were mailed paper checks. the dollars were subcontracted out of their accounts. are those treated any differently? what are we doing to track this down? >> we found out about that situation. the accounts reflected the money went out, even though the accounts announced. in this third transfer, we are going to include them. there are approximately $57 million worth of bounced checks that we know about.
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they should all get up to 70%. it is unfortunate we could not include them in the earlier transfers. >> producers always thought the rest was in the market rather than in the firm handling their dollars, and it caught a number of my constituents. that is a question for ms. sommers. what is a statement of nonparticipation? >> i do not know the answer to that. >> the letter that mr. gensler sent out, it mentions nonparticipation. can you describe exactly that is versus refusal? >> i would not know the differences between the two. the cftc does not have a
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specific policy dealing with recusal. we followed the office of government ethics regulations on that. >> that would be a great question if we could hear from mr. gensler at a later time. it was noted here that he was forced by the senate, but that makes no notice of that, but i will note that he participated in numerous calls and activities with mf global after the bankruptcy. has he indicated to you or other members of the staff of the cftc why he decided, after he participated after the fact, in multiple negotiations? >> he has not discussed the particular of his refusal with me, but that is his personal position. >> thank you, and i wish you would share with the other
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commissioners, that if you were aware of that, that looks rather suspect and reflects poorly on him as the chairman of the commission to invent something such as a statement of nonparticipation which no one seems to know what it is. he has already participated. on july 20, the one-year anniversary, and the deadline for the dodd-frank equirements, their were conference calls. could you describe what were in the calls? >> i did not participate in a conference call in july. >> you are correct, that was in december. i apologize. >> in december of 2010, i had a meeting in my office with mf global. >> was jon corzine in on that
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meeting? >> he was. >> where there notes kept of this meeting? and, perhaps. i cannot recall whether i took notes. it was at approximately 15- minute meeting. >> is it normal that meeting such as this there may not be notes taken and no one outside the room would know what took place? >> my staff was in the meeting. mr. corzine had staff with him as well, let no substantive issues were discussed. it is not uncommon that meetings where no notes were taken. >> you discussed bankruptcy on december 21, 2010. that is an important subject as we continue to hear, one of the items, the meeting with mr.
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corzine, one occurred on july 20, do we have notes of what they discussed? this is strange, mr. gensler used to work for mr. corzine at goldman sachs. >> i can pass that on. i do not know if there are notes. >> gentleman's time has expired. the chairman recognizes the gentleman from california. >> fe. thank you very much for coming in and testifying before us, into the investigation into the mf global. we have learned a lot of valuable lessons. it is too bad that the lessons are at the expense of the consumers. we need a lot more oversight and that is why we need the frank- dodd bill.
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cannot assume that everybody does all the procedures, and that is what has led to some of the problems. from your testimony, it is my understanding that mf global is different than the previous fcm bankruptcy, such as lehman brothers, because customers lost their money. can you explain to the committee why these losses occurred for commodity custer sat mfg, not at lehman brothers? >> in both of the previous most recent bankruptcies, the customer accounts were whole, were fully intact, meaning all the positions and supporting collateral for those positions were in the segregated accounts.
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when the fcm went into bankruptcy, the customers were whole. in mf global, that did not happen. >> why not? >> the customer segregated accounts were not whole. >> should they have been? >> absolutely. >> why not? >> the money was not there, and that is part of what our investigation, both on the enforcement side and in the county, to look for truth the books and records, we are looking at exactly what happened to the money. >> there's a probability that the money was never there or was there? >> i think the money was there in the beginning. the customer's deposited money. the customer money was there. >> but now it is gone. let's talk for staffing needs at
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cftc. simply put, the cftc have enough manpower to effectively regulate all the future exchange and trades that need to be monitored in the united states? >> sir, we do have a system where we rely on self-regulatory organizations. >> de you have enough manpower? >> we do. >> so you do not need additional manpower to monitor trade in the united states? >> there is no doubt, as we are given the new authority, overseeing swap participants and the odor -- and the over-the- counter trades, there is no doubt we need to increase staff we have at the cftc. >> can you explain that the call
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tuesday are facing collecting anmfg customer funds now located in for depositories? >> there is a separate pool of property under cftc regulations for that. virtually all of the property that was held or should have been held for those accounts is held in foreign locations. those are affiliates of the business that are in bankruptcy or other kinds of proceedings themselves, so they are now held by foreign administrators. we have to hold those administrators, seeking both an accounting of what they have and also to talk to them about getting the funds back. but experience tells me it may be a longer process to do that then it is domestically.
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>> are there any steps in congress that we can take or the department can take to facilitate the return of customer funds? that is what we are dealing with, customer funds, and the american people of tired of their funds being sent somewhere else, in foreign depositories. are there any steps we should be doing or the department can take? >> the trustee is taking all of the steps that he can take. unfortunately, that may mean going to litigation with people. whether there are steps that could be taken with regulators in different jurisdictions, that may be helpful. i know from experience that one problem in these cases is sometimes insolvency rules and other parts of the world do not always work the same way they do it in the u.s. i do not know what the impact of that on the administrator's decisions. >> if not, we may need to
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develop guidelines, or make sure they are clear in their policy. >> yes, it would be very helpful to have international protocol and have countries follower similar rules. >> we now recognize the gentleman from pennsylvania, mr. thompson. >> thank you, chairman. mrs. sommers, me. kobak, thank you for your testimony and due diligence and the investigation. the findings are extremely important to us. this particular situation, to me, in simple terms, it poses or three potential losses. one is the loss of customer moneys, and i wish the best of the block in being able to make these individuals whole in their
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moneys. i think the second loss is the loss of opportunity for proper investments, where this money would be earning for those individuals. finally, a loss of confidence. i think at a loss of confidence to those in the system that we have that are trading futures and options in this country. commissioner, a situation like this is exactly why many farmers are not using hedging to mitigate risk and control their cost. in terms of agricultural producers, what can the cftc due to grow confidence in the system? >> i think you have hit on a very important issue, because we want to make sure that confidence is maintained in the markets that we oversee, that the integrity and proper functioning of those markets is
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communicated to the public and to those who are using the markets. shortly after i took over as senior commissioner for m.f. global, working with the dsro's, wanted 8 spot delegation of funds so that we can give the public confidence that all other are treating's customer segregated funds properly. >> m.f. global was required to file daily reports, monthly reports, out quarterly reports. was there a failure on the part of cd -- cftc to act on and utilize these reports? >> absolutely not. if we had seen red flags in the reports, we would have acted on that. the ftm is obligated to notify
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us of being under segregation, and that did not happen. >> it appears there was a requirement for daily reporting, that the information that m.f. global was reported on a daily basis was failing to disclose the realities that it now appears we have with this loss of funds. >> the red flags were raised for us in the week preceding the bankruptcy of m.f. global. we had staffed in m.f. global starting on the 26th of october. >> given that commodity accounts are settled daily, why has it taken five-plus weeks to determine if custodial customer account excess cash is missing, and are there any preliminary recommendations that have been identified to correct that from
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continuing in the future? >> i will let mr. kobak answer as well, but we cannot over emphasize the complexity of these books and records. thousands of accounts, tens of thousands of transactions, and following each of these transactions, the bank reports, looking through, from what i understand from primary accounts, reviewing 300-500 pages of summaries from bank accounts is very complex but. >> mr. kobak, any comment? >> i would support it is very complex. you also have to understand it in the early days of one of these proceedings, one may not have perfect access to books and records. sometimes depositories turn off screens, did not allow access. sometimes system vendors
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threatened to shut off systems. in our case, we had some issues with the holding company about getting access to documents that both of us had an interest in./ in addition to the sheer scale, there are days where we need to get into the systems and records to review. >> thank you. >> the chair will call from the gentlemen of illinois. you are recognized for five minutes. >> thank you. but i just have a couple of questions for mr. kobak. i wonder to what extent the u.s. department of treasury is involved? >> i am not aware of it. i know there are some u.s. attorneys as well as the cftc and sec. >> you don't know if they're tracking funds domestically or internationally? but if not as far as i know.
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-- >> not as far as i know. >> i wonder if they have released the money to the trustee? >> they have or they will be. in the first transfers, we have not at all of the money from u.s. depositories, had a lot of it was at the exchanges, especially cme. >> you said they have or will be, so when would you expect that to be completed? >> if the court approves our motion for the next transfer, which is on for hearing tomorrow takeng, i think myight two-four weeks to implement. >> does the trusty seek or conduct assessments of the help of the receiving firm's prior to transferring m.f. global accounts? >> the way that cftc regulations
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work, we have to get consent over to the cftc. one of their criteria is the receiving broker not only agreed to it take the account, but the appropriate financial conditions would not put them under their capital requirements. -- would put them under their capital requirements. >> so there is an assessment of their health? >> yes. >> i yield back the balance of my time. >> the chair recognizes the gentleman from ohio. >> thank you to the panelists, and mr. chair, today. i am concerned about the integrity of the futures market. it is essential for agricultural producers, and hopefully mr. kobak will be able to make the farmers whole as quickly as
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possible. i understand as a farmer when you have margin calls and have to put cash up front, it could put you in a posture that could be detrimental to the operation. along with questions on that, i assume that moving segregated funds to their house account, per se, is illegal, is that correct? >> that is right. >> ok, what is the penalties for doing that? one second. we talked about how complex this all is, and i understand the complexity of that. it i would think the enforcement or police would have to be how we monitor or control list. what are the penalties under current law? >> it would be $140,000 per violation, or three times the monetary gain, as well as
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potential restitution and other types of finds that we may find appropriate. >> when funds are moved to a third party, ok, does that third party have any obligations to the to these moving the funds from to make sure they are not segregated funds? do they have an obligation? >> there are obligations that are from our regulations put on the banks that hold for the accounts. that have to provide acknowledgment letters that they understand that this is customer-segregated money. there are obligations from our regulations. there may be other obligations from banking regulation on other banks with regard to those kinds of transfers. >> i want to follow-up on the ranking members' comments. i think he did a really good job
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explaining what happened. there was a lot of money that moved from margin accounts on the commodity side over to the security side for them to do the deal they were doing. when there are funds like that moved from one side to the other, is there any reporting that they have to do when it goes over to the security side? >> if the money is moved of the segregated account into a permissible investment, the exact amount of collateral has to be put back into the customer segregated account. you are not allowed -- it would be a violation of the act to just take that money out and use it for your own use. >> thank you, i yield back. >> the gentleman from minnesota. you are recognized five minutes. >> thank you, mr. chairman, and
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thank you for your time line is getting on this. $1.2 billion is a lot by any standard, but i have to tell you, it is the 30,000 of my constituents i am concerned about. i know this has probably been asked. i did not want to take up any more time as we move on. thank you for being here. as we look at the rules, you need to look at those entirety. i know that many of you, i am sure the two of you are familiar with the infamous 1.29. are we interpreting that wrong? it appears that in 1.29, the segregated accounts were fair game. have you told us, ms. sommers, that is not correct and you have to see it in the entirety? >> regulation 1.25 it deals with the investment of customer
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funds and permissible investments. it gives a list of what investments are permissible for them to use. an scm is not allowed to take customer funds out of a segregated account to use for their revenues. that has never been permitted. >> when the next panel rives, that is what we should be asking, did those funds get removed for use? >> for use on the house side or security side. >> right, my final question, and mr. kobak, maybe you could help me, are the funds -- are the claims by shareholders at superior to other claims? >> they have claims against that no other creditor has. >> so if jpmorgan asks, those folks are first in line. >> they are really the only line unless we're dealing with access. we're not dealing with access,
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we're dealing with deficit. >> thank you, i yield back. and the chair will recognize the gentleman from ohio. -- the gentle lady from ohio. >> thank you, mr. chairman. ms. sommers, i want to go back to the december 10 meeting with mr. corzine. while you may or may not have taken notes, normally when somebody requests a meeting, there is a purpose that has been documented. what was the purpose of that meeting? >> as i recall, the issue we spoke about that day was the individual segregated accounts for swarps, versus individual accounts. we were discussing at the time whether or not we should put it swaps in individually segregated accounts and whether or not that
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framework would be appropriate for futures as well. >> and what was mr. corzine's position and what was yours? >> his position was that it would be a very costly structure to impose on the futures market. >> did you have a position on that, mrs. sommers? >> we are still looking at that issue. it is one of the issues we have not finalized with regard to swaps, but the proposal we had been discussing is only for swaps, not for futures. >> thank you. if m.f. global was not a broker- dealer and held the security accounts, would m.f. global go through regulatory bankruptcy proceedings? what would be different from our present situation and would be in charge? i know that as a couple of
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questions wrapped into one, mrs. sommers, and then mr. kobak if you want to follow. >> i am sorry, i thought you were asking him a question about specific bankruptcy. could you repeat? >> sure. if m.f. global was not a broker- dealer and held the security accounts, would at m.f. global go through regular bankruptcy? what would be different than our present situation and would be in charge? if you cannot answer that -- >> if m.f. global were an scm only, it would not be a bankruptcy liquidation. however, the commission regulations do uplight even an at the bankruptcy it -- they do apply in the bankruptcy.
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if customers would not be treated any differently in the bankruptcy, to my understanding. >> the statute says that not only does the trust the have those duties, but he as the duties and rights in the bankruptcy as even if it was just a straight commodities liquidation. >> maybe somebody has answered this, but at the senate agricultural committee hearing last week, chairman gansler said and individuals who co-mingle their own funds with customer funds could face civil penalties. could you confirm there are civil sanctions for this? are they just monitor it? is there punitive damage or jail time for taking a customer fund and using it for an authorized purpose? >> misuse of customer funds is a violation under our act and we have the authority to impose civil penalties for violations of our act.
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>> are the monetary only? >> monetary penalties. criminal authority has the right to look into this and pursue criminal -- >> would be appropriate to seek those criminal authorities to get involved, or would you just hope they would be looking at this and get involved on around? >> in many cases, we do referrals to criminal authorities. and what do you anticipate that happening here? >> it is my understanding there are a number of different authorities looking into this. >> if you had an opportunity to weigh in, what would you be weighing in on the civil penalties or can you not answer? >> i think we will pursue to every extent under the law that we will pursue that as vigorously as we can. i cannot speak to what would
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happen on the criminal side. >> thank you, i yield back my time. >> the time has expired. the chair now recognizes mr. gibson, five minutes. >> thank you, mr. chair, and thinking to the panelists for being here. questions about the daily segregate it reports, is there requirement to report on the weekends? >> the daily segregated reports are required to be kept by scm's. m.f. global provide at the cftc with daily reports because we required them. it is not required by all scm's. >> and the last report was friday the 28th? >> right. i guess i should clarify, our
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staff went into m.f. global on october 26, that wednesday, and has not left yet. we did not leave on friday night and come back monday. we were there saturday and sunday. >> we have a report on friday, the 28th, we have a written statement that it is from the former ceo that says he was stunned that the funds were not there. any early indication that had there been a report over the weekend that we may have captured some important information? >> the way that i will understand this would work, the end of the day reports from friday would normally be filed on monday. but if there were examiners and a firm on saturday and sunday, they could be getting end-of-day friday reports earlier than they normally would get them. >> so the process already allows
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for movement over the weekend. you could capture that? >> if there are examiners and there, they could be asking to look at those records over the weekend? >> from the vantage point of my farmers, by customers, is it reasonable that they get this? >> absolutely, and i think they should be asking them what they invest the customer money and so the customer would know. >> any thoughts, early in the process, but have you had discussions about that, how things might be changed to
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provide that? >> we have had a lot of internal discussion about those types of requirements, and as we get towards the end, knowing from the investigation exactly what happened, we will be able to put a comprehensive list together. >> thank you for that and i will be watching closely. i yield back. >> the chair now recognizes the gentle lady from alabama, who will be followed by the gentle lady from north carolina. " you are recognized five minutes. >> thank you both for being here today. but briefly, commissioner, he said very emphatically about whether you have the ability to do your job, you said very emphatically, yes, i have the ability to do my job. i like to ask this question -- is this about what we are here today about, but all of the
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really particular new ones is surrounding it, is this about whether or not our current lwas or per. or there are strong enough protections in place as of right now? about one or more individuals poured decision making ability? >> i think after we learned what happened, we can look back and see whether or not our corn statutory authority was appropriate. at this point, there are adequate laws that protect customer segregated funds and that did not permit an scm to take customer funds and misuse them. >> as relates to the self reporting aspect, why would oneself report their own wrongdoing? >> even if they are under seg
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for a little while and they know and maybe an issue with transfers, an scm is required to report was if they are under for a small amount of time, and that does happen. they do report that. >> ok, thank you. i yelled back. >> the chair now recognizes the gentle lady from north carolina. >> mrs. sommers, my questions are pretty much for you. first, for you, my comments about chairman gansler not being here, i think that he should be here. i know it has been discussed there was somebody from the san that -- from the senate who compelled him not to be here, but this is the house of representatives and he has been here on a number of occasions on
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behalf of the cftc, and i think he should have been here as well. i applaud you for coming and taking part, mrs. sommers. i just want to clarify something that you have said, and maybe i misunderstood. in some of the questions, you had said, if we are able to move forward on our investigation. is there something standing in the way of this? >> no, and i am sorry if i said that, i misspoke. it is not if, it is when. >> also, dating back to the red flags -- getting back to the red flags, not seen the red flags go up, i am just going over the dates and what not. september 1, m.f. global announced in a public filing it would comply with the determination to increase its capital.
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was this considered a red flag by the cftca? >> that is something we were made aware of by a previous filing in august by m.f. global to us, but because they were required to post market capital and they did, it was not necessarily a red flag to us. at that point, we would look at that side of the business, and make sure we wer reviewing the risk associated with their futures positions and making sure they have enough collateral to support their business on the futures side of. at that time, they did. >> thank you, i yield back. >> the gentle lady yields back. all members have had an opportunity to question. the chair wishes to think this panel for their insight and participation today, and you are dismissed.
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[captions copyright national cable satellite corp. 2011] [captioning performed by national captioning institute] >> today, the judge overseeing the bankruptcy of m.f. global approved releasing about $2 million more, clearing the way for some of them to recover their money. the company filed for bankruptcy on october 31. more now from this hearing. >> i like to welcome our second panel witness to the table, the hon. jon corzine, former ceo of
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m.f. global inc. would you please stand for the administering of the oath. please raise your right hand. please state your name for the record. do you solemnly swear that the testimony you are about to give before this committee and the matters on consideration on this day, december 8, 2011, is the truth, the whole truth, and nothing but the truth, so help you god? thank you. please be seated, mr. corzine. do you know you have the right to counsel? and please activate your microphone, senator. >> i do, sir. that is your counsel in the room? >> my council is. >> please state his name for the record. thank you, senator sommers. please -- thank you senator corzine.
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please begin your testimony when you are ready. >> like all of you, i am devastated by the enormous impact on many people's lives resulting from the events surrounding the m.f. global my distress and sadness pales in comparison to the losses and a hardships to customers, employees and investors have suffered. their plight weighs on my mind every day. as the ceo of mf global at the time of this bankruptcy, i apologize. i must make it clear that since my departure from mf global on november 3, i have not had access to many of the relevant documents which are the central to me being able to testify accurately to the days preceding the declaration of
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bankruptcy. members should understand that dundee turned down my request to testify voluntary in general wary. i hope by that time i would have reviewed and relevant records so i could be more helpful to the committee. while i intend to be responsive to the best mics ability today, without time and materials, i may be unable to respond to questions. other questions, given my role in the company, will be questions for which i have no personal knowledge. many of your questions may well be once i myself have. when i joined the company in late march, 2010, mf global was a broker that provided clearing services for products traded in derivatives markets in exchanges around the world. the reform had reported losses in five consecutive quarters
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before i arrived. upon my arrival, the management and board advised by an outside consultant devised a new business plan. it was communicated to the public and provided in substance that mf global would devolve into a broker-dealer and into an investment bank. the plantation of the plan was expected to take up to five years. i was hopeful about prospects for the company, and i invested in it personally. the compensation was in the form of options to purchase stock. in addition, on a number of occasions, i purchased shares of the company with my own funds. i never sold any stock. in the summer of 2010, i met several times with mf global senior traders to discuss ways to improve the company's revenues and profitability. one of the ideas discussed was
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for mf global to purchase sovereign debt from europe. before i came to mf global, the firm had engaged in billions of with regard tos u.s. securities, bonds, and corporate debt. it had also previously held billions of dollars of foreign sovereign debt positions. in the summer of 2010, we decided to draw on these experiences and to engage in rtm's involving short-term sovereign debt. in these transactions, mf global purchased sovereign debt from a seller and sold the same to a counterparty with an agreement to repurchase the securities at the maturity of the debt. when mf global entered into the transactions, i believe its investments in short-term european debt securities were prudent investments. f global invested in rtm's
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despite to the debt of belgium, ireland, and portugal. the first three of these were rated aa or better. even today, all three remain a raided or better. others were backed by the european financial stability and the imf. accept responsibility for the rtm trades. i strongly advocated that strategy. it is important to recognize that mf global's investment in these positions was the subject of internal discussions with senior managers, traders, and with mf global's board of directors. the trades were described, analyze, and debated at multiple board meetings. the board members, all of whom joined the board before i joined mf global, were independent and sophisticated. they ask hard questions and
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raised concerns. the directors approved sovereign risk limits for these rtm trades. at the time of bankruptcy, mf global was within these limits. the peasants were publicly disclosed, but in the periodic financial statements, which were reviewed by the council and accounts, and other public statements, including press releases and earnings calls. as of today, none of the foreign debt securities that mf global used to engage in rtm trandes is the fault. all of those securities that reached maturity while they were part of the rtm were paid in full. in my written statement, i have attempted to describe the relevant context with regulators during my time at mf global. as explained in that statement, i did not exert improper influence on regulators. i communications were typically in the presence of various
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members of the staff as well as my own colleagues. the late summer and fall of 2011 were difficult times in financial markets for almost all participants. on october, 70, charles cole -- dirl co -- "the wall street journal" published an article. on monday, october 24, rating agencies began to cut mf global's ratings. mf global announced its quarterly earnings on october 25. the announcement would reveal that mf global had lost $191.6 million in the quarter that ended september 30. in light of the attention that has been given to r t mm and reports that a trivet our loss
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involving debt securities, it is important know a loss was not related to those positions. as i have explained in my written statement, the lion's share of the quarterly loss was a write-off of approximately $119.4 million that were related to tax losses accumulated in the years before i arrived. shortly following the earnings announcement and the ratings downgrades, some clients with do their business from the firm. others require increased margins. firm stock traded at sharply higher volumes and lower prices. despite our best efforts to sell assets and generate liquidity, the marketplace lost confidence in the form. on the forefront of everyone's mind, including mine, are the reports that customer accounts have not been reconciled. i was stunned when i was told on
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sunday, october 30, 2011 that mf global could not account for many hundreds of millions of dollars of client money. i remain deeply concerned about the impact that the unreconciled in frozen funds have one mf global's customers and others. i simply do not know where the money is or why the accounts have not been reconciled today. as the chief executive officer of mf global holding company, i ultimately had overall responsibility for the firm. i did not involve myself in the mechanics of the clearing and settlement of trades where the movement of cash and collateral. nor was i an expert on complicated rules and regulations governing the different businesses that comprise mf global. i have little expertise in those aspects street i do not know
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which accounts are unreconciled or whether unreconciled accounts or even subject to the segregation rules. moreover, there were an extraordinary number of transactions during this period of time the last few days with mf global. i do not know whether there were operational errors at mf global or elsewhere, or whether banks and partices at funds that should have been returned. i am sure that the receiver and regulators are working to answer these questions and understand precisely what happened during the firm's last days and hours. as the ceo of mf global, i try to exercise my best judgment on behalf of our clients, employees, and shareholders. once again, let me go back to where i started. and i mean this with all
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sincerity. i apologize, personally, and on behalf of the company, to our customers, our employees, and our investors. i truly know they are bearing the brunt of the impact of the firm's bankruptcy. this concludes my prepared remarks, and i am willing to answer your questions. >> i recognize myself for five minutes. you have served in the role in congressional oversight before. you know we have an obligation to get the facts, to address the uncertainties in the market and address whenever loss may need to be focused upon. thousands of your former customers across the country are experiencing severe financial hardship because of the events occurring under your watch. many of those customers are the farmers and ranchers i represent in oklahoma, and that this committee represents in the house of representatives. the fact that their property is
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missing is alarming and disturbing, and the fact that their confidence has been lost in the futures market may have a long-term practice in the -- a long-term effect in their practice in the agricultural community. the people working for you are watching also and are looking for answers. i suspect you may have some of those answers, so i would like ask you to enter these questions to the best of your ability. mr. corzine, is there a shortfall in the customer funds that mf global was legally required to keep segregated? >> mr. chairman, i know only what i read, and it certainly was true on the late evening of the 30th of october that there were unreconciled accounts.
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>> to the best of your knowledge, why is there a shortfall? >> mr. chairman, there are many transactions that occurred in those last chaotic days, and i am not aware of all those, nor do i have information to be able to look at those transactions. and as a consequence, it would be very hard for me to speculate why or where that shortfall took place. >> let me ask any precise fashion. in your role at mf global, it did you authorize the transfer of customer funds from these segregated accounts? >> i never intended to break any rules, whether it dealt with
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segregation rules or any rules that are applicable. >> are you transfers -- are you available of transfers out of customers' accounts? >> i am not in a decision, given the number of transactions, to know anything specifically about the movement of any specific funds, and i will repeat, i certainly would never intend to direct or had segregated funds moved. >> at one point were you made aware that customer funds were missing? >> the first that i heard of the many millions, hundreds of millions, missing, was on sunday night. >> i would like to discuss how a company that has been around for 230 years failed to the surprise
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of its customers and investors, and based upon press reports in your testimony, under your direction. fm global's sovereign debt position increased steadily. it has been reported that mf global's exposure went from $1.5 billion at the end of 2010 to $6.3 billion at the time of bankruptcy. let me ask you this, governor. who is michael roseman? >> he was the chief risk officer of the firm preceding might join the firm, and up until the end of 2010. >> explain me what a chief or officer dues? >> they represent the board of directors in and is treating the delegation of authority is the
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board of signs -- assigns the activities of the firm, looking at operational risk, consult with the board, and consults with management. >> is it true that he on multiple occasions expressed concern that mf global was overexposed in a european sovereign debt and the firm did not have enough capital to withstand potential losses? >> mr. roseman had a different view about the sovereign default risk associated with euro sovereigns, and particularly in the context that we did other business with those countries, and he expressed that to me directly. he expressed that to the board. >> did any members of the mf global board expressed concerns
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to you with a level of risk accumulating in the portfolio? >> there were multiple discussions, some which i think, once i have access to records, will be documented in the minutes of the board meetings about this subject. and there were people who dissented in the debates, and then sometimes supported actions that we were taking after those debates. sometimes there were people who did descent. i do not know the exact elements, but generally we are arrived at a consensus. >> is it true that you threaten to leave the firm as ceo if the board did not trust your judgment? >> mr. chairman, i did not threaten the board that i would leave. i had once this of a conversation with a lead director, which, could it had
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been interpreted that way, in a sense that i said if the board, using the powers that it held, had lost confidence in me, i would be willing to step down. >> i am austan mr. roseman was no longer chief press officer after march of this year. were you involved in that decision? >> my view was we needed someone in the chief risk officer position that was more fully attuned to the broker- dealer side of our business than backgroundseman's was about, and there were other issues about how people work with each other, not with me in particular, but within the firm,
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that led the board and my agreement to that that we should change chief press officers. >> which have been watching the eurozone crisis unfold, and yet you push forward with an aggressive bets despite warnings from employees. what the you know that we did not -- what do you know that we did not -- what did he know about this that's the you were willing to bet the survival of the firm and its employees on which you were responsible for? >> mr. chairman, we looked at many in addition -- indicia, the ratings, but they were not the only rating considerations. we look at what counter-parties would charge for an initial
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margin, you would look at how individual securities were looked at by regulatory authorities and around the globe, what they were able to be used as collateral for. you would look at prices can in markets to determine whether people thought the default or restructuring risk was being pressed into it. there were many different considerations, along with the ongoing dialogue, which, after the fact, clearly can be second best. that the european community was on take a -- take much more forceful steps to avoid bankruptcy or insolvency in sovereign's cases and hold the full payment of the securities.
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>> in the days leading up to bankruptcy, how often did you talk to mr. gensler? >> no private conversations my rolex collection -- in my recollection were held between mr. gensler and myself. to the best of my recollection, and this is why need records, mr. gensler was on the general discussion with regulators on the very early hours of october 31, and if i am not mistaken, boasting that was given to regulators on saturday, which i guess would have been the 29th, when there were a series of regulators. >> at any point did mr. gensler
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courage a bankruptcy filing? >> in my recollection, there was no encouragement in any of those forms, and i do not recall anyone suggesting that he was encouraging bankruptcy filings. >> mr. corzine, as a registered futures merchant, mf global was subject to periodic audits. what were the result of those audits over the past year? >> mr. chairman, from my -- >> would have reviewed this, correct? >> i would have, if there were exceptions to challenges that i have included in my statement. we certainly had discussions with finra in the august time frame that i was very much aware of.
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further discussions with the sec. there were inquiries from the sec about the treatment repos, but no reporting of some of the challenges to how the firm was operating that i can recall, except with respect to the finra issue. >> when the suggestions were made, did you make those changes? >> to my recollection of the details, and there are many, many elements, internal, outside consultants, the regulators' observation, we had people who made sure we were responding. we went to audit committee reviews of those kinds of
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actions that were taken in response to questions. so i had reason to believe that we did. >> how would you respond to charges that mfg's books were a mess? and you were a supporter of sarbanes-oxley, like myself. >> mr. chairman, my understanding is that our books and records were reflecting the chaos that occurred in the last two or three days as the firm was under severe pressure and had lost the confidence of the marketplace. i think that is distinct from the books and records. i think i have reason to believe, based on the least the
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reporting that occurred in our audit committees over a period of time, that our books and records were in a mess. but that is a question i think others will have to opine about after they look at those in retrospect. it is clear that in the last hours, last days, there were many, many, many more transactions than typically occur. >> one last question. why did mf global report to september 2010te that it did not have any foreign sovereign debt that it carried over in mid 2010? >> mr. chairman, i believe,
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again, without checking records and without the ability to be certain on this, always open to confirming with records, i think you must be reporting -- looking to the month-and it reportedly filed with finra on our capital position, and in september of 2010 it is quite possible. it is quite possible that beginning positions that we took in euro sovereigns were on the books of one of our other not in the finra- related subsidiaries. >> my time is expired.
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>> thank you. i wanted to follow up on a couple of things. the one thing that struck me, mr. corzine -- the way, in your testimony about leverage, apparently when he took over, the leverage was 37.5 to one. and you got it down to 30, and that is a good thing? this mentality on wall street i do not get it about leverage. i guess you have to do that in order to make money. >> i listened to some of the earlier conversations. the challenge of running mf global as it was organized it was both fcm and a broker-deal er.
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those two elements opposed different kinds of constraints, but one of those is it built up your leverage higher than would otherwise be the case in an organization that was just one or the other. >> according to your testimony, these positions, securities, you never lost any money on. none of them ever defaulted? what put you in trouble was when the margin -- and finra are required to put up considerably more money -- >> the finra capital adjustments that we took are really different than that capital -- the liquidity issues. those were things that at the capitol in different parts of our overall organization that we could put into the regulated
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subsidiary that finra looked at. and with not much difficulty, we were able to war than meat and run excess capital positions. you are suggesting that the rtm position were a drag or a significant user of liquidity is true on the clearing exchanges in europe, which the sovereign rtm's were cleaered. on the other hand, because of mf stress in its last few days was a combination certainly of sovereign positions, which were a concern to the marketplace, make no mistake about that, and it was also the
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ratings downgrade and what i have tried to stay my oral statements, an inability for those of us in management at mf global to convey what the losses were all about and often got inflated with euro sovereign positions, which there were no losses in. >> i guess we have to vote, mr. chairman. >> the committee will stand in recess, and you will continue in answering questions when we return. [captions copyright national cable satellite corp. 2011] [captioning performed by national captioning institute] h >> this hearing of the committee
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on agriculture to examine the mf global bankruptcy will come to order. i recognize the ranking member to continue his questions. >> your testimony indicates that on sunday, october 30, you were informed that mf global could not account for clients' funds. who gave you that information? >> to the best of my memory, i was informed and 30 or 11:00 on sunday evening. -- and warned at 10:30 or 11:00
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on sunday evening. i do not know if it was a cfo or the general counsel or who exactly. >> somebody from your firm? >> from the firm. >> apparently, i talked to gensler the next morning. he said he had been woken up at 2:30. do you know why it took from a 11:00 p.m. until 2:30? do you have any recollection of what happened there. ? >> to be careful of my remarks, there was a presumption,
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although the cfo was working to reconcile the books. they had not established unequivocally that money was missing. there was a serious concern that they were not do that. mf global was working to be sold at the time. we were in the process of doing due diligence with that perspective buyer and that individual buyer wanted to have this reconciliation established as well. >> i take it there was not any
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kind of recommendation given to you. >> that a satisfactory explanation. mostly unreconciled accounts that they were attempting to go through, not unlike what i think it's been reconstructed. i really should not speculate. -- not unlike what i think has been reconstructed. i have not reviewed records.
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i do not remember. i feel comfortable there was no intention on my part to violate any segregation rules. >> in your testimony you have little expertise in operational aspects in the business such as moving capital and rules governing operating businesses. who at mf global have that expertise? who did you rely on for that. ? >> every firm puts in place control elements, policies, procedures, hires people to give assurance to ourselves in the first instance, to our auditors
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and regulators in the filings we would make to make sure those were true and accurate. at least in the experience of the 19 months that i was at the firm, certainly after i got my feet on the ground, i had confidence people were doing that. i suggested to be audit committee reviews of the various committees. >> there was not one person? >> ultimately, the ceo is responsible for all elements. then the cfo is responsible for the financials at the firm. there are people on our organizational charts who are responsible for the operational aspects of the firm.
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there are people who are responsible for the auditing aspects of the firm, including separate groups to ensure management or to give confidence to management that you could comfortably sign sarbanes oxley affirmations on quarterly financial statements. >> i am sure there are different people. who had the authority to move customer funds from several data accounts? -- from segregated accounts? >> there are several people in cash management have that authority. i do not think it rests with any one single individual. there is a cfo of our north american operations. a cfo of european operations,
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asian operations. that individual in a normal organizational structure would have people who battled -- who had a cash management. ultimately, there is somebody who hits a button. i would not have known who that person was who would send money to the system. one of the reasons i have been careful to say, without looking at records, it is hard to reconstruct from the position that i held how that would have worked. it is a complex process. >> did you a firm and best customer segregated funds in sovereign foreign debt? >> to my recollection -- all
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records would verify this -- the answer is no. sovereign positions were held at the broker-dealer. they were not a part of the fcm process. >> i do not know a lot about this business. i am told a good part of the profitability of the fcm is the arbitrage on the customer account as opposed to the commissions. >> i will not rehash what is in the oral statement. we buy a security that yields 5%. a in to security to maturity with a payment of 2% of interest to who is financing you. the difference is the profitability you would make.
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>> what i was asking is, is that a bigger part of your profitability than the actual commission business itself? >> the commission business is still a larger percentage of revenue. >> are you making money on that? where are you making money? >> i tried to frame some of the history of mf global. the business is under tremendous pressure given the legitimate competition for commission, high-frequency trading puts enormous pressure on it. commissions have declined. frankly, we had not stayed up to date with technology so that we were still voice brokering much
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more than technological delivery of brokerage services. probably more important than any element in the current environment is the extended period of low interest rates in the united states and around the globe had compromised what kind of spread an fcm like mf global would have been able to earn on those balances. higher rates would have been positive for the earnings. they were not. our fcm business made it much more difficult to be successful. had under long-term aspects that i spoke about in my written statement that were attractive because of the reach and the scope of the business and its reach in scope to clients -- it
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was a business in stress. >> thank you, mr. chairman. >> the chair recognizes the gentleman from virginia for five minutes. >> mr. corzine, i would like to follow up with some of the questions about what happened to the best of your knowledge. can you tell us what role you played in monitoring the segregation of customer funds? >> congressman, my role would be primarily to bring the assurance to myself on an ongoing operating basis that we have the people, the policies, the procedures in place to maintain that segregation. as i had said to previous
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questions, at least until those last few chaotic days, felt comfortable we had adhered to. >> how often have you shown data demonstrating customer funds were in tax? >> i was aware we had to make those calculations daily. i did not look at those on a daily basis. >> how often would you say you did look at them? >> other than the fact i was assured they were calculated every day and submitted to the appropriate bodies. >> when did you discover segregated accounts were missing funds? >> as i answered in the previous questions, the lack of reconciliation was brought to my attention with regard to many millions on sunday. >> which sunday? th.the 30r
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october 30. >> were you aware of any activities preceding the bankruptcies of shortfalls? >> i was not aware of any shortfalls be presented to me. >> is it possible any shortfalls could have gone undetected by you or senior management? >> i am not being flip. >> is this something that had been going on for a long time? they raised accounts to cover for -- >> in the chaos of the last few hours and days, either a
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miscalculation or money that was expected to come in versus transaction that occurred -- as i said in my statement -- >> it would be a large miscalculation, wouldn't it? you were missing $1.20 billion. were funds ever been used -- funds ever used to fund its proprietary accounts? >> futures accounts had been invested in rule 125 eligible securities or were held in depositories for the client. >> did you are far met ever in best customer segregated funds in foreign -- it your firm ever in best customers segregated funds in foreign sovereign debt -- invest customer funds in
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florence sovereign debt? debt?reign sovereign >> generally it is invested in the 125 rule or it is in this apart -- in depositories. >> the 125 will could have included florence sovereign debt -- 125 rule could have included foreign sovereign debt. from what you have learned since
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you became aware of this in late october, is it your impression that money was taken from those funds to invest in foreign sovereign debt or was it used for other purposes? >> i do not want to speculate. i did that have the information that would allow me to do that. all i can do is read the same reports that are in the public forum. those are confusing to me. >> me, too. thank you, mr. chairman. >> the chair recognizes the gentleman from pennsylvania for five minutes. >> thank you, mr. chairman.
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fcm is required to file monthly reports. since fcm is a corporation, it must be signed by the ceo or the cfo. by your recollection, the cfo is not signing monthly reports. >> i am not aware of signing those reports. no recollection whatsoever. i know i do not think i signed those reports. >> you said you wanted to voluntarily testify to this committee in january to give you more time to have access to the records so that you could respond to this committee's inquiry. since it has been over a month since he stepped down and you have not add access to those
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records, what makes you think you have had access between now and the first of the year? >> first of all, is a good question. my expectation is that we will, as we get farther down this path, have access. we have requests in to the trustee of the holding company for access to my e-mails, papers, files, things that would potentially shed light and give me the ability to be more precise in my answers. >> the records are what would it make you think you would be more helpful in the next several weeks? thank you, mr. chairman. >> the chair recognizes the gentleman from indiana.
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>> my comments are comments and questions. some are hybrid and you will have to consider them accordingly. i represent and the people in this room represent a large number of ranchers, farmers, small business people who lives and livelihood have been jeopardized by their investments that have gone south. my question is, do you have an estimate -- i know you cannot tell us exactly -- as to how much money has been lost by those investors? >> congressman, that is a question i would like to know the answer to as much as you. i am hopeful there will be an effective recovery and reconciliation of these accounts. >> i have not done a net worth analysis of individuals who have
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testified before this committee. according to any account, you are a person up substantial wealth. i congratulate you on your acquisition. on behalf of these people who are farmers and small business people, assuming they are not made whole, are you and other executives of your company with willing -- will lead to withstand the loss to allow them to be compensated and made whole. either yes or no. is fairly simple. >> i do not think this will go on resolved. >> assuming it does go unresolved through the system, are you willing to commit that you will commit yours and the other executives' personal fortunes to make these people hold? mr. gensler has decided
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appropriately so to recuse himself on this issue. according to your relationship and the whole goldman sachs -- i guess my question is, if he did that in the last several days and given the fact that you probably occupy a position semi analogous to an attorney before a judge where recruits go -- where recusal so would be appropriate, why wasn't ridicules dole something that was pursued earlier in -- recusal something that was pursued earlier in the process? >> i would not speculate about the internal considerations that mr. gensler our people -- or
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people at the cftc demonstrated through the normal course -- >> i have about 45 seconds. i appreciate your response. you indicated as the chief executive, i had overall responsibility for the firm. you go on in the course of a statement to indicate everybody else in the process of the then you was responsible for this. my concern is, based on a failure to segregate funds and a failure to oversee the operation of the company and/or a technical efficiency in terms of the overall responsibility of governing be firm, something fell short. at the end of the day, the members of the committee and i have a lot of people who have suffered dramatically and will suffer because they would not be able to buy feed and equipment
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and will not be able to a best in what they do. they suffered dramatically. i commend you. you have been the leader of a representative state with millions of people. you have been the ceo of major corporations. people have given you a lack of responsibility and fiduciary capacity. it also concerned that those capacities have fallen short. a lot of individuals all but the country and the people they represent are going to wind up holding the bag because of negligence or combing billing or at negation of your responsibility as a fiduciary in -- negligence or abnegation of your responsibility in a fiduciary capacity. i think you would agree that over the course of the next several months, my constituents
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are made whole and life can go on in the real world outside the beltway of this process, outside the beltway of this process where people live that have to make a living. at this point, they are hurting really badly. time hasntlemen's expired. >> i share the sentiment that the congressman express's. >> thank you. we will be ages to see the next couple of months. >> the chair recognizes the gentleman from iowa. >> i do not see much point in repeating so many of the things that have been said. i am curious as we think about the capital investment that people i work for -- i represent
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have made. what do you suggest we say to them as they contemplate how they deal with futures, the market, hedging or try to use the system? what do we tell them? what lesson have we learned? >> first of all, i convey the kinds of sentiments i spoke to the previous congressman about on a personal level. i believe and have the expectation given some of the options i put into my written and oral testimony and the hard work that regulators and the trustee have done that the
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missing funds will be found. that is the obligation. i would expect, and legitimately so, that these hearings would bring out the elements where exposures exist that should be corrected. that they are understood in light of the facts. hopefully, we can address some of those holes in a way that gives people a greater confidence in the market going forward. there is no question that the security markets are essential for the operation of our economy and the global economy at large. >> well said. i will yield back, mr. chairman. i will hope that as we continue to discuss this, because of your
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background, we might call on you for a suggestion or two. thank you for your time. i yield back. >> the chair recognizes the gentleman from iowa. >> thank you, mr. chairman. governor course i, i appreciate your comment. i did not think i would -- governor corzine, i appreciate your comments. this must weigh heavily on your content. do you anticipate a significant personal loss when this is all shaken out in proportion to those who are investors and entrusted you with their money? >> first of all, my own
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expectations and these late hours is that the money will be recovered. no matter the anguish that individuals feel because they are uncertain. it is serious. for that, i apologize and i will certainly do those things that i can to make that process -- do you anticipate a proportional personal loss? >> i will repeat what i said to congressman johnson. >> let me go another way here. the agriculture piece of this thing will continue to be thoroughly examined. i will look into the investment in the bonds. spain, italy, portugal, belgium, ireland. that seems to have triggered this. as i look at that list, that is
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the list of the countries we have had the greatest concern about except greece. was there a ration now in not trading and speculating in the bonds of greece as well let the other sovereign nations i talked about? >> if one did a decent -- a detailed credit analysis of online sa of france -- underlying south france -- sovereigns, greece seemed like a country that could potentially go through a restructuring process >>. . >> substantially less than the other countries? >> substantially higher debt
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to gdp. substantially unreliable statistics. >> the clock is ticking and i talked faster than most of the folks in this capital. investment in these other countries, was it made with the anticipation that greece would be bailed out? was part of it that greece would be bailed out by the rest of the eu? >> part of it. >> news reports about the investments in new jersey and
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lehman brothers shortly before the economic situation we know so well in the fall of 2008. do you have an estimate or a number on how much money was lost by a lehman brothers before the fall? >> i do not recollect the amount of loss. >> would it be in the area of $100 million? >> i would suggest we had an investment department that was separate from the government department. >> there were hundreds of millions of dollars transferred in the last hours before he was sworn in as the governor of new jersey. he spoke to him and promised him he had a 5 $20 million surplus going in. it turned out to be less than that. $2.20 billion. that comes to do $2.70 billion.
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i want to give you an opportunity to publicly respond to that. i do not know what i had a response -- i saw a response in the media. >> our treasurer did respond to those numbers. there is a difference about the timing when one was making those judgments. i would have to go back and prepare myself to speak to that. there was a growing shortfall in the winter of 2009 and 2010. in the economy was falling dramatically. revenues were falling with regard to what revenues would be collected. >> and perhaps the compulsion to take risks.
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thank you, mr. chairman. >> the chair recognizes the gentleman from california for five minutes. >> my grandmother was an immigrant to this country in the 1920's. she did not benefit from the fantastic education that you and i benefited from. she gave me some great advice. she is to lead-me daily when she was alive to always do the right thing when nobody was looking. -- she used to admonish me when she was alive to always do the right thing when no one was looking. when you were the head of mr. corzine -- of mf global, did you always do the right thing when no one was looking? >> every and sent an effort was
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to do the right thing. -- every intent an effort was to do the right thing. >> how did you handle yourself at that point? >> there were constant meetings with the board. my next question is, there was a point in time where you got the first inkling that there was a substantial amount of money that had disappeared, had been stolen, we do not know what happened. at that second that you got the first inkling that there was substantial loss in your cooperation and you would be held liable or your company would take this tremendous hit, what was the first thing you thought of and did? did you call the police? did you run into the bathroom
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and throw up? you lose $1 billion or $2 billion the aerospace -- $1 billion or $2 billion -- >> i was stunned that this was the case, that hundreds of millions were reported to be missing. you go back and check your work. that was the first response. >> did you call and tell your cfo where is the money? what was the first thing you did? do you remember? >> the first thing that follows from this conversation was, let's make sure we have done everything we can to
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appropriately confirm what you are suggesting. it was not as if all expectations had been closed. >> i would have probably done to the restroom and thrown up. thank you for the answer. a few years ago when i first came to congress, i introduced an ethics bill that said if you break the public trust as a member of congress or as a member a place where you have the public trust in you commit a crime in that public trust -- they came in response to my dealings with enron. i said, you should do double the penalty. we passed in the house. it did not get through the
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senate. looking back on your career in government and business, i think the price to business was slow. when you are in a position of public trust, do you agree that we have a higher standard to the public? if we do not rebuild that public trust in all our government and business institutions that we are going to have a difficult time in this country to succeed in the future. >> i do agree with it, congressman. as an elected public official, the oath of office that i have taken deeply impacts how i dress they at first that i fulfil -- how i address the efforts i fulfill.
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it is one of those issues i think the public is concerned that they do not get a fair shake on today. >> thank you for your answer. thank you for being here. >> the chair recognizes the gentleman from texas for five minutes. >> mr. corzine, i want to go back to your earlier testimony. you said, i never intended to violate any rules. >> i would repeat that in the context that there were people who handle the transfer of funds. i am not one of those. there are people -- >> that was not the question.
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the question was, in the heat of the moment when you were trying to sell this company, trying to keep this company afloat and pull a rabbit out of a hat, did you ever authorize any of your people? >> i never authorized anyone. >> you never intended to. but you may have. >> if i did, it was a misunderstanding. there was nothing that says i was tapping into segregated funds. >> you gave orders that you do not know whether you get -- >> since i do not have access to phone records or anything that i could rely upon, i can only say i know i had no intention to ever authorize the transfer of
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segregated monies. >> the answer is, you do not know what you did or not. >> i could not concern based -- confirmed based on what i have available to me today. >> you were granted primary dealer status by the federal reserve bank of new york. you were proud of the fact that you were able to achieve that. there are some reports that on a conference call you were extolling the fact that you would be able to take the company to a new level with this status. what was the strategy that being a primary dealer would give you? >> congressman, i do not recall framing it the way that you do.
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it would be inappropriate and probably would have been criticized by the fed i had. i was asked a question, what does it mean to have primary dealer status. you have access to financial -- financing arrangements to some clients that you might not otherwise have. you have the opportunity to transact business with people around the globe that you would not normally be able to transact business with. it gives you the chance when the federal reserve is extricating -- executing its market operations without having an intermediary to do that. it is certainly constructed. i am not walking away from the fact that it is better to have been not to have in the context of the house.
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>> there are only 20 countries -- 20 companies -- >> i think there are 21. >> that is a prestigious designation. what is the criteria that your company has that would have cause the fed to give you that that. if that you for a long time to see if you are transacting business. treasury securities. are you doing reverse purchase agreements for clients so that they can facilitate access into the market. insulin under the impression that they have -- do not recall the exact number.
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-- and did the present that day have -- i do not recall the exact number. >> do you think it is strange that a company that is consistently losing money and the company is deteriorating that they would get such a status? >> my own perspective on this is bad we where at the time -- it had gone on for the better part of 18 months -- we were demonstrating we were participating with clients at levels that were significantly higher than some of the other people recognize. we had adequate capital.
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as i indicated in a written testimony, historical earnings have not been so good. they have gotten parses a patent -- progressively better. ed aboutere question whether you had adequate capital or not. >> those questions came after the designation, early in 2010. the challenge was in august of 2010. that was with regard to their interpretation of how the capital here cut charges were applied to europe. >> the gentleman's time has expired. the chair turned to the gentlewoman from georgia. >> i must say that it is at the height of this belief that you, as a former senator and
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governor, you are the former head of the premiere most prestigious investment banking operation in the whole world. to sit there and to say that under your watch as chief executive, $1.20 billion and you know nothing about it. the key to finding out where my constituents' money went. i represent georgia, a lot of farmers. they are wondering whether they are going to get their money back. the key is you. you are ceo. who at "the contenders was responsible -- who at mr. corzine was response -- who at
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mf global was responsible for deciding what you invest in. what did you do at this company? was its run by the board? who makes these decisions. who made the decision -- >> decisions at a public company are made on the recommendation. i take full responsibility for the recommendation that would before the board. it also not trying to say otherwise. those at best decisions -- investment decisions rest in my judgment. >> rest in your area. explain to me. you came in and you made that
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decision. you had been at the company for a short time. your holdings in foreign sovereign debt was $1.50 billion. this year, that holding has gone up to $6.30 billion. foreign sovereign debt at a time where each of these countries are teetering on disaster. was that your decision? >> i take responsibility for that decision. in my oral statement, -- in my written statement, i tried to give perspective on why i thought it was, at the time, somewhat different than how one might assess it in a different environment. >> did you call middle customer
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funds with your proprietary funds? -- comingle customer funds with your proprietary funds? >> there was never any direct intent to comingle those funds. >> i can count the times that you use the phrases never intended to, not to my knowledge, not to my recollection. i understand the position that you are in. we have to find that money. we have to get that $1.20 billion and get it back out to our customers and to my clients in my farmers in georgia. we have to get better answers than this from you. you are the ceo. let me ask you this, mr. corzine.
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it you use client funds to pay off mf global's debt? >> i have no recollection whatsoever of client moneys out of the fcm being used to purchase euro sovereigns. >> did you ever use customer funds to buy sovereign foreign debt? >> client funds were not financed out of the fcm. >> why did you lobby the cftc against proposed changes to the
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regulations that would have prevented futures merchants from approaching foreign governments? why did you lobby when it wanted to put controls on that? >> the meeting that you are referencing is the july 20 meeting with mr. gensler. it was about the percentages, concentration percentages. they were in support of the cftc modifications. as it related to the internal purchase agreement that cftc just ruled on last monday. >> if you were not the one to
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rule on the loss on this $1.20 billion, somebody is. who would that be? >> the gentleman's time has expired. been with this may answer. >> as i said, we had people, policies, and procedures. as i have said in my testimony, i do not know if this is inadvertent. i do not know whether in the flows of transactions that were occurring -- and there were more transactions that were according -- occurring in the last candidates. someone might have held onto the funds that rightfully were to have been delivered to mf global.
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without being able to look into those records, those are options. i do not have the ability, other than to speculate, where they would be. >> the gentleman's time has expired. the chair recognizes the gentleman from texas. >> you testified you are not an expert in all aspects of business, nobody is. was there somebody in your organization who, when the report was prepared after yesterday's close of business their job was to come down and show that figure? the issue of evidence funds, did they rise to that level in your mind? >> if there were an outage, it would be brought up.
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>> would that be something you would have been made aware of or would that be someone else in your organization? >> if there was an on reconcile circumstance, i believe it would have been brought to my attention. >> just tried to get a sense of how mf global's by getting treated segregated funds. in terms of tone from the top, many organizations take on the attitude of their leadership with respect to compliance and organization and those kinds of things. you actually placed orders yourself on sovereign debt. in the placing of those orders, if you go through the normal routine that anybody who has the authority would have gone through? >> i did not place orders.
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i worked with traders to place orders. i went through normal routines. we had special compliance oversight of my activities. >> that is helpful. one of the other aspects is the liquidity risk. you are not telling us that just showed up in october. you also had some sense that the second quarter results would not be as favorable as you wanted them to be. >> we were well aware that he there at the end of the second or third fiscal quarter that the deferred tax assets would have to be reduced. >> you are aware that during the july-september time frame, you had $100 billion.
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the bankruptcy filing said it was a contraction of your proprietary trading that helped drive much of the loss in that second quarter. given that -- you knew that the liquidity risk -- that mf global faced a liquidity risk. when did you put measures into place? when the margin calls started happening and customers wanted their money back, the tenants are coming to you to set, this is what we need to do. did you ask, where did you -- where were your lieutenants telling you this is how we solve the problem? where were you getting the money? >> we had done stressed tess
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about securities we would be able to sell in the broker- dealer for the purposes of generating a 3 up of marchant. -- fre-up of margin. we had undergone -- undrawn credit lines. >> why didn't that system work? >> i do not know all the details. i really do not, congressman. there are many things that are presumed to have been able to do it -- able to generate liquidity. many banks lived up to their delivery of the cash that was
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supposed to be available by the law. >> let me finish off. back on the culture issue. when things got crazy on wednesday, thursday, friday, you had people in place who knew the difference between segregated funds and proprietary funds. they knew what was right and what was wrong. character is tested during those crucibles. is there anything you think you could have done that would have said to them that is ok. the disaster we are in is going to be ok. the folks cannot hide behind not knowing the difference. >> i do not think anyone would interpret anything -- i do not think. not on the other side of the phone. there was never any intent in my
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language our actions -- >> i am not trying to pin you down. we are not prosecutors. but the team failed. lehman brothers had a catastrophic failure. their fcm is this move to the next day. the chaos surrounding lehman brothers was the same as at mf global. why weren't they able to do the right thing at the heat of the ?omentum of >> our fcm was a bigger part of our business than theirs. that does not answer your question. i do not know the answer to that. i would be speculating it i did.
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>> the gentleman's time is expired. the chair recognizes the gentleman from connecticut. >> you mentioned the phone conference with cftc regarding the dodd-frank rule-making. in your testimony, you said the principal topic of discussion was whether 125 should be changed to prevent scm from engaging in transactions related to brokers and dealers. we talked about the rule adopted on monday regarding foreign sovereign debt. she was repeatedly pointing out to us that that rule would not change anything. it only applied to customer accounts and the problem was more in the broker-dealer accounts. the question i would like to ask
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-- looking again at mf glo's letter to the committee -- the rule that was adopted on monday regarding in-house repurchase agreements, what impact could add half had regarding the purchase? >> first of all, the rule that was adopted on monday -- and i am not as well-versed as i would be if i were still in the business -- did not deal with foreign sovereigns other than that they were precluded without application for exception. but they were never available for any purposes as far as i know, as well as i can recollect the rules, except for deposits
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taken for customers in foreign currency denominated deposits. this is not the issue that not only mf global but the fia the cme, most of the fcm's if not all of the fcm's were petitioning because of the cost and inefficiency that would occur if those internal repo's are not allowed to be able to take place. >> the chairman in his comments on monday felt they had taken a great step forward in terms of being able to reduce the risks surrounding these repurchase agreements. are you saying that is irrelevant? >> clearly, as the issues of having an fcm and a broker-
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dealer in the same entity, certainly in a time of struggle, as mf global was experiencing in the last days, i think does call or raises the issue that i waszler airman cance trying to speak to. in a time of stress, his arguments may be much stronger. >> i'm glad to hear you say that, because having been here in 2008 when the world was collapsing, and frankly the process of enacting dodd-frank was like crawling over broken glass just to do something so complex, but i think it was our duty to address the fact that there clearly were systemic
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problems that exposed the taxpayer and the middle class to damage that could happen when these systems malfunctioned. again, the efforts by the commission had just gotten trashed, in this room, frankly, in the last year, in times of -- in terms of trying to implement dodd-frank. i think it is time to realize that everybody cannot have it the way they won it. there have to be rules in place that limit the height risk -- high risk that expose farmers and people just trying to live their lives and people just trying to have some confidence in this market. they're going to be investigations that are going to work through the bankruptcy court and maybe other authorities, but we are lawmakers. our job here is try to figure out the right way to balance rules that will prevent these things from occurring again.
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frankly, in retrospect, i just wish the commission had moved faster in terms of implementing these rules. i think it would have created a structure which reduces risk, which at the end of the day is what we have to do if we're going to create any stability in this economy. i yield back. >> the gentleman's time is expired. the chair recognizes the gentleman from nebraska. >> thank you for your willingness to come here today and answer questions. i was recently at an eagle scout ceremony and one of the young people there stood up and said does. he said, "america depends on the quality of her citizens." i was struck with the beauty, the simplicity, and the profundity of that statement. the problem here is we cannot pass in a loss fast enough, create enough regulatory entities quick enough, if there is a collapse of the type of
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values that lead to responsibility and commitment to the common good. we simply cannot do it. therefore, it is incumbent upon those of us in government, business, media, education, the other institutions that shape our culture and give us good order, fairness, justice, opportunity, it is incumbent upon all of us to act in the public's trust. in this regard, i am going to ask you a few questions. who owned mf global? i asked the question of the regulator prior to this. they could not give the answer. i would like to know. >> mf global is a public company. shareholders, broadly, held the stock. there is actually report that can give you exactly who those people are, or institutions that were the owners.
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>> who were those institutions? >> there is a whole range of large institutions. >> i would like to understand the interconnections of the financial-industrial complex. >> fidelity, mutual-fund complex. there are a number of other institutional holders like that. there were hedge fund holders. there are individual holders. i am a holder. there were private equity, which i mentioned inside my remarks. >> who hired you? >> the board of mf global. >> who? >> the board of mf global is the hiring -- responsible hiring authority. if you are asking who introduced me to mf global --
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>> it would be helpful to know the story. >> some of this is in the written statement, but i had, as a private investor, a holding in equity firm j.c. flowers. the ceo of mf global in march 2010 abruptly resigned. they instigated a search for the ceo of the board level. i presume it was suggested from the board member from jaycee flowers that sat on that board that they ought to talk to me. >> we talked a little bit about this in your testimony, but basically, describe your job. >> as the ceo of mf global? first of all, set strategy, which i think i spoke to --
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about, in my written testimony. that needed to be defined not just with myself, but with our board, needed to represent the firm externally with clients, counterparties, regulators, and given the business strategy that we are about, i needed to make sure that we had personnel. youin that regard, who did hire? >> a whole host of folks. there was significant change. we hired a new chief operating officer, internal audit, risk officer, new heads of europe, new head of asia. >> i'm sorry, my time is running short. you have said it was never your intention to call mingle
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segregated funds. how could you name a scenario in which you could unintentionally do that? >> well, that would be very speculative on my part. someone could misinterpret -- we have got to fix this. which i said the evening of october 30th, we have got to find money. >> would the gentleman yield for one question on his line? >> from the governor or from year? >> me. >> yes. >> mr. corzine, what percentage of the equity or ownership in mf global did you own, for curiosity's sake? not a very large amount, i would assume.
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than 10%, 5%, 1%? >> closer to the latter amount. >> is that typical for senior managers to be small equity stake holders? >> it was not only the amount i bought, but also how my compensation was structured. >> stock options. >> stock options. >> so, typically in a company like this or when you would be a part of overtime, your interest will grow through stock options, a reward for good performance. >> correct. >> adjust from the perspective of -- so, just from the perspective of asking about the nature of your business, it would appear that the more aggressive the enterprise, the better those kind of rewards
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would be, and certainly, most of the investors are very sophisticated people, correct? they understand the nature of the kind of enterprise you have been a part of. >> they're very specific investors. >> in oklahoma, we call that a high pride and. i yield back. >> what we have here is inordinate risk taking, leveraging other people's money, we have the possibility of improper to a mingling of funds, and we have another assault on the nation's trust of the financial institution. i yield back. >> the chair now recognizes the gentle lady from alabama for five minutes. >> thank you. i want to begin with a brief statement or comment before i start my questioning. you know, this hearing is important today not only because
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we are trying to get to the bottom of how thousands of farmers and growers, and producers, have currently lost their capital and are struggling to figure out how they're going to make ends meet, but we are also here because this has badly affected hundreds of americans who have lost their jobs, directly and indirectly, because of the loss. in these challenging economic times, it is even more important, i believe, that we have the public trust really do become good stewards, or try to become good stewards of the money and that trust. so, my hope today is that we not only get to the bottom of what happened to mf global, but how this affects more broadly the financial industry generally, and in particular how it affects our farmers and growers. having said that, in my
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formative professional career, i was a securities lawyer in new york city. i can tell you that what differentiated me and the investment lawyers i represent is our appetite for risk. so i ask you mr. corzine, as the ceo of mf global, was the direction and the appetite for risk that you, in steering this company -- could you speak a little bit about how mf global was positioned prior to you getting there and what your hopes were when you assumed the responsibility of ceo, and how you would rate the risk appetite of the company and perhaps yourself? >> thank you.
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it primarily was a broker firm, commissions and earnings on the balances as the basic source of revenue, although there were some principle risk-taking. they had already begun to apply for the primary dealership, so they were taking broker-dealer risks in the government securities business. they did the same in european sovereigns in our european operations before i came. one of the commonly used metrics with respect to risk is what we call value brisk -- value risk, and that was roughly 5 million,
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before i came with a delegation of 15 million. we stayed pretty much at that level while i was the head. there were certainly times when it was higher, at times when it both on reporting and on an internal basis. >> you talked about how to mask, for lack of a better word, any shortfalls. what direction was given by yourself as management with respect to those types of transactions? >> the transactions looked like things we had done on repossession to maturity with larger amounts in other areas. >> euro sovereigns were becoming
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quickly insolvent. >> there is clearly a difference, although they were still highly rated by agencies, and as i said in some of my earlier remarks, but other metrics that were required by clearing organizations or individuals. it was our judgment that they were particularly the ones we were involved in were less risky than would otherwise be the case. >> my time is running out and my last question is, what do you think would be a fair outcome, given the state of affairs currently? if you could wave a magic wand
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and figure out how we solve this crisis we are currently facing with mf global, what do you think would be fair? >> i am absolutely hopeful that a full understanding of what happened in those last few days will reveal the source of where these moneys are. i continue to believe that those resources are in the hands of either counterparties or her there has been some -- or there has been some mistake in forwarding of those to someplace i would not know. that is what i try to write in my remarks.
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>> hope the spring eternal. i yield back the rest of my time. >> the chair will now recognize mrs. schmidt for five minutes. austin and scott should stand ready. >> mr. corzine, i know you said you were not quite sure about when this money was wired transferred, but mr. corzine, mf global in march 31st, 2011 shows a net position of $23 billion. but bloomberg reported that you pushed this bet to $11.5 billion in your hedges were insufficient to substantiate their risk. some observers pointed out that mf global would of had cash problems on trading days throughout 2011. surely you are aware of the problems. i ask you, -- and about the wire calls.
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>> first of all, the $11.5 billion is a gross of both short tod long, reverse rtm's toturity as well as rtm's maturity. therefore, if i am reading their reporting -- and i do not know whether or not they got the facts -- but it is a combination of the long and short. and i do not, you know, i do not think that, therefore, the conclusion is exactly how you would see it -- >> but at some point you had to know that there was not enough money. >> the only time that we could conclude there was not enough money was when the unreconciled
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accounts were notified. >> well, ok, were repos or maturity actions used to hide your position with european sovereign debt? it is reported that these transactions increased every time a ceo? the personally direct the firm to -- increased over your time as ceo? did you personally direct the firm to use these? >> the disclosure you site was in our reports to the public, in our public disclosure documents, along with its implications for gains and losses, and those disclosure documents were reviewed by our outside auditors.
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they were reviewed by counsel. they were reviewed by our audit committee, and discussions of those elements were part of public discussions with analysts and others. >> well, it has been reported by "wall street journal" that you pushed forward with aggressive and highly leveraged positions on foreign debt, foreign sovereign debt. mr. corzine, we have all been watching the eurozone crisis unfold, and there is significant uncertainty about its resolution. why were you so confident about these bets? to what degree were you willing to bet the very survival of the firm, its employees, and most importantly, the shareholders? >> the investments that we had in the euro sovereigns were bought and financed to their maturity, and those positions
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were very difficult to be able to be unwound, and once they were in position, they had significantly less liquidity than a security held that was not financed to its maturity. and the other hand, significantly less risky because financing was in place. having financing in place to manage the overall risk of holding a particular security -- diminished the overall risk of holding a particular security. >> how did you take a country that was in existence for 230 years to bankruptcy within a year and half of takeover? how do you explain to investors the collapse of mf global? the answer sounds so nice, but you invested in a market that was so risky that i would not
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invest in it. >> congresswoman, sitting here today, with knowledge that the market has drawn the conclusion it has drawn and the facts are what they are, it would have been better to have taken different judgments at the time they were taken, but we, and i, did those things that we thought were in the best interests of shareholders, and all of the stakeholders, given the inability of the old business plans that the firm was executing on to generate the kinds of revenues that would protect customers as well. >> the gentlewoman's time has
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expired. the chair now recognizes the gentleman from georgia. >> thank you for coming before the committee. i do not think many people would have joined us for as long as you have an been willing to answer the questions, so thank you for being here. you have repeatedly said that client funds were not used to purchase foreign sovereigns. were those client funds ever pledged as collateral on the purchase of foreign sovereigns at mf global? >> to my knowledge, and again, this is one of those things where i would have to get into the records to be absolutely precise, i am not aware of that. >> apparently, from all of the reports, there was commingling of funds. just approximately what do you believe the coming -- wendy believe the coming winter first
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occurred? >> -- when do you believe the commingling first occurred? >> i do not want to speculate. i know that several of senior management were informed at roughly the same time on sunday night of many hundreds of millions of dollars being unreconciled in the accounts. >> do you believe that the commingling started to occur in the last 10 days before the bankruptcy? >> i am under the impression, and again, i do not have records to confirm, so i do not want to go farther than i should go, but mf global had to submit reports each day, and as i suggested to one of the previous questioners,
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if we had been out of balance, it is my presumption that it would have been reported upward. >> yes, sir, but those reports are not audited by anybody, as i understand it. their self-reported. >> i think, if i am not mistaken, a number of regulators were on premise from the 26 on. that does not mean they monitored all aspects. >> but to the point that the regulators came in, it was pretty much too late at this stage, wasn't it? >> it certainly was not my operating premise that it was too late at those stages. we were generating liquidity. we were drawing on liquidity
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facilities. to the best of my recollection, meeting our obligations. >> if i am not mistaken, you're still investment-grade less than 10 days prior to the filing. i may not be correct about that. >> it is true. the first reading change occurred on monday, october 24th. >> and things happen very fast thereafter. >> there was another set of ratings changes on thursday, if i'm not mistaken, the 27. >> you have been a governor, had a very successful life, accomplished a lot of things. this is -- i sense the pain that you recognize that this is one of the things that you will be judged -- that your life will be
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judged by. what can we do -- what can we make good out of this? what can you tell us, sitting where you are, what rules and regulations would you put in place if you were sitting up here to prevent an mf global from ever happening again? >> congressman, i have given it some thought, not great thought. it is clear that in moments of stress, organizations do not always operate in the same way they would in a normal operating environment. and i certainly would look for trekkers -- triggers the would enhance the oversight of organizations in those
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conditions. >> thank you for joining us. i yield back. >> the gentleman yields back this time. the chair now recognizes the gentleman from colorado. >> thank you for joining us. i would like to follow up on a comment that congressman scott just made. it 10 days prior to the debacle , moody's and fitch had mf global rated as investment grade. was that a good decision, 10 days prior? >> the rating agencies -- >> from your knowledge of the company, was that a good assessment? >> certainly, the facts after words do not make that look
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effective as an assessment, but at the time that they had last reviewed and were intending to review around our quarterly earnings announcement, at least several of them had put new assessment directions into the works. >> so, the assessment was probably a poor one. i want to follow up on a comment you made earlier in questioning. it was regarding the commingling of assets. you threw out the statement, "we have got to find the money." was that your statement? was that the corporate mentality? >> it was all of us. everyone had an obligation to get the books reconciled. >> i want to address the corporate mentality. when you went to mf global, did
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you read through the mission statement and believe in it? i can give you a couple ofquotes. mf global as a strong balance sheet. because of our strength and comprehensive risk-management, clients can have confidence that they are trading with a strong counter party. was that your sense? did you believe in that? >> i believe those statements were right at the time, and we needed to enhance it with a growth strategy that would provide success for the firm, as opposed to what had been, in recent years -- >> i was a small businessman until i took this job. not trying to mix metaphors here, but you had to look your business globally, knowing that
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the impact on one section of the business could impact another section of the business as well. when you made that determination, given the comments we were just talking about in terms of the fitch, moody's rating 10 days prior of being investment grade, looking at the horizon, into the eurozone for those investments, given the full knowledge that this country, with $15 trillion in debt, we had had our credit rating downgraded, did that tie into the corporate mantra and the beliefs that you were just saying was the original intent, or was it a risky investment for the entire operation? >> as i have tried to say probably more articulately than i will do here, with the analysis and the perspectives on how those particular
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sovereigns were looked at, we thought they were prudent investments. >> would you have been personally willing to risk your funds? >> i absolutely was willing to invest and was investing in mf global until august. >> i am not trying to put you on the spot, but where you were stock motivated, did that help drive some of that decision, based on the performance of the stock? >> that was one element, but also protecting the value of the stock is another responsibility, and as a shareholder, i would expect decisions to reflect those concerns as well. it is not only performance.
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>> i will tell you, and i certainly agree with congressman scott, i can sense from you some agony personally over this, but believe me, talking to many of our folks in rural america, $20,000 is not a nice evening out. it is all they have. when we look at it globally, i think we all have to be very distressed in terms of the collateral damage, particularly when we cannot find $1.2 billion of struggling people's dollars. and out of time. i yield back. >> the chair recognizes the gentleman from arkansas. >> mr. corzine, are you licensed to trade securities? >> yes. >> what license do you hold? >> i would have to go back.
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>> series 3, series 7, series 6? >> [unintelligible] >> i figured that was the case. do you trade on your own account? >> not regularly. >> have you ever traded on your own account using customer funds? >> on my own account? know. to my knowledge, i have not. i do not trade to my personal account. >> has any employee, to your knowledge, ever used client funds to trade? >> i am going to repeat what i said. >> got that. >> if you did have knowledge of employee trading on customer account, with the penalty for the employee? >> certainly, as far as i could ever imagine, they would probably be terminated? >> have you ever dismissed an employee of mf global for any kind of malfeasance that would
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be of that nature? >> sitting there was a fairly notorious trading situation -- i think there was a fairly notorious trading situation that occurred in 2008 before i joined the firm. >> but under your direction? >> yes. >> could you describe some of the malfeasance? that require their to be disciplinary action or possibly termination? >> a really would like to have specifics about that so that i do not talk about an individual without having my facts straight. >> i just read an article that reuter's put out about a farmer who had $200,000 in an account at mf global. it has not been returned to him yet. it has been almost a month since mf global filed for bankruptcy. there is no telling when he will get his money back. he has missed the deadline for
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buying seats in the discount for next spring's corn and soybean crop. his financial future is certainly in peril. most of the farmers in my district, and i think this is true throughout the country, or one crop failure away from bankruptcy. the action we have seen from mf global puts them that much closer to bankruptcy themselves. as the former head of the now bankrupt company that this man entrusted to the degree that he would rather have his money in one of those segregated accounts than he would in a bank, what do you say to the farmer who is now facing bankruptcy or a similar farmer who might be in a similar situation? >> congressman, as i have said multiple times, i think about this every day. i could not be more regretful of the stress the we are bringing
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to people's lives, and i could not be more anxious to see a resolution of where there's unreconciled accounts -- >> let me ask you this you have an impressive background in the financial services industry. i'm going to ask you to speculate. i'm going to ask you to think what you would do in this situation. in all seriousness, i would like to know what we tell farmers who are facing this. if you were in a situation where you had potentially two hundred thousand or more, or 20,000, 30,000, $40,000, what would you do if you were that far? -- farmer? >> my father was one of those folks who went to the grain elevator and hedged out future crops. >> i know you have expressed
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remorse here, and i appreciate that, but i am in all seriousness trying to figure out how you advise the farmers better in this situation. -- that are in this situation. >> congressmen, i am not sure i have specific it buys. -- congressmann, i am not sure i have specific advice. i can only say that the process of trying to find these funds is one that absolutely needs every resource possible to make sure that it is accomplished. i think i have to leave it there. >> last question, do you have a compliance officer at mf global? >> absolutely. >> at what point did he bring this to your attention? how often did you review the activity? >> there are a broad set of
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compliance issues and internal that confirmed the operations are operating the way they're supposed to. those are ongoing, daily. >> thank you. appreciate it. >> the gentleman's time has expired. the chair now recognizes the gentleman from kansas for five minutes. >> i will follow-up with the question. if you're so concerned about making sure that your investors are made whole, how come you quick four days after bankruptcy was declared? >> in response to report request -- to a board request is why i resigned. >> in the squatter days, what
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did you attempt to do to make -- in those four days, what did you do to try to make investors hold? >> i spent tuesday, the early morning hours, trying to find out some of the same questions that people are asking here, with no particular positive results on that. >> nobody seemed to know where the funds were and were able to tell you? did you ask the question where the funds were, and what was the answer? >> people were still looking. lots of transactions were in -- >> i think it will be the same answer as we received before. on trying to understand, july 20th, you conducted numerous meetings with the
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members of the cftc. >> i had two conference calls. >> according to the record, you had a meeting with a former employee at 1:00 p.m. at two of 3:00 p.m. you had a meeting with this summer's -- ms summers, and at 330, another meeting. >> to my recollection, i was on a conference call at 1:00 and the commissioner at the time that you brought forward. again, as we have suggested in both written and in my response to questions, the primary subject of that conversation were repos between the broker-
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dealer and cftm. >> did you have any separate calls for conversations with mr. ginsler when you took the job at mf global to the present time? >> you have my calls, meetings outlined. >> you never once called his cell phone? >> no. >> did you speak to another member of the administration at this time? you're very close to the current administration. you're a very generous campaign butler. did you ever speak to anyone in be -- campaign fund albundler.
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did you ever speak to anyone in the in ministration about mf global? >> not to my knowledge. >> did you speak with anyone at the federal reserve? >> i've visited the federal reserve, as i reported, with respect to the primary dealer, as i have testified, always with staff and never with either the president, chairman, or any of the board of governors. >> on december 21st of last year, you had a meeting with the cftc commissioner about segregation in bankruptcy. do recall the topic of those discussions? >> commissioner summers spoke about that meeting this morning. it had to do with issues on the treatment of swaths consistent
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with how futures retreated. in a d howodd-frank would -- how dodd-frank would deal with those issues in coming discussions. i do not remember the specifics. it was a relatively short meeting. >> we're lucky that there was a record of that meeting, though apparently they do not keep notes. did your private secretary keep nuts? -- notes? >> to my knowledge, they did not. >> i appreciate your time. but again, i would like to ask the question directly for myself, what do i tell my producers? should i suggest to your contrite but you're not going to try to make them whole? good luck. we hope you find your $200,000?
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is that a pretty good summary? >> congressmen, i hope you believe that i am as intent of answering the question of where this money is as anyone in the room. >> the tenements time has expired. >> thank you. >> the chair -- the gentleman's time has expired. >> thank you. >> the chair now looks to wisconsin. press your microphone. >>, the federal regulatory agencies have some type of
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oversight -- how many federal regulatory agencies have some type of oversight for the business you're in? >> i have not counted them, but it is multiple. there are all kinds of agencies that deal with labor and other activities, the federal reserve has oversight, not regulatory responsibility. as we have become a primary dealer, there are more, and then there are a whole host of sub- regulatory organizations, a number of which you will speak with in the next panel. >> how often did you have an opportunity to visit with the regulators? how often were they there? you were there 18 months. was this a regular occurrence? did the federal government have a lot of responsibility in oversight?
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>> a number of them would visit the firm more broadly than just with me. sometimes people more senior would come and visit in offices. we have tried to outline some of those. there was one meeting which i cited where four of the regulators, or at least most of the regulators in the u.s. visited us in june of 2010. i addressed them for 10 minutes, and the rest of my colleagues, at least on the operation and control side and finance side, spoke more in philly. -- spoke more lengthily. we have international regulators in multiple menus across the
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globe that also have responsibility -- multiple venues across the globe that also have responsibility. >> do you think we can regulate greed, incompetence and fraud out of existence? >> could you repeat the question? >> could we regulate greed, incompetence and fraud out of existence? because at the end of the day sir, we have to make a decision as to how, going forward, we can help protect consumers and investors from having another mf global happen, and i fear is that we will do what the government always does, make a more rules and send more regulators, and a year from now we will have another example. i'm wondering what is the real solution. fraudhe greed and
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pandemic global? no matter what we do on this side of the day is, it is still going to happen -- dais, it is still going to happen. >> whether it is for those reasons or poor judgment, bad judgment, mistakes will continue to happen in the course of human events. that is inevitable. as it relates to regulation, as one that has historically been more supportive rather than against, there is an enormous need, from my view, and probably does not amount to much at the moment, but from my view, to have it consolidated so that it is less complex to manage. >> is it difficult to manage a
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company of your size? >> with the multiple regulators that exist, and we live in a global world that increases the complexity. segregation rules in london are different than the segregation rules in the u.s. futures markets. the futures markets are different than securities markets. so, the answer is yes, a more integrated approach, at least from one man's point of view, would make this a little easier. >> i am trying to get a sense of what might take away needs to be. it has been a long afternoon. thank you for your time. >> the chair now recognizes the gentle lady from north carolina. >> governor corzine, i have a couple of questions for you for clarification. the question was posed to you, why did you resign on november 3rd, and you indicated that it
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was at the request of a board member. >> the lead director. >> and that person's name? >> said goldberg. >> thank you -- ed goldberg. >> thank you. i know we have talked about where the responsibility lies. the btu hold responsible and accountable for this money -- who do you hold responsible and accountable for this money being gone? >> as the ceo of the organization, i hold the responsibility that the implementation of the policies, procedures and people we had in place to execute on these es -- the buck stops
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here, on that score. the details of how that gets executed are an organizational issue that is broad based. people certainly were prepared -- at least from all reports to me and as i can recollect, executing appropriately on those rules. again, in a chaotic final days and hours, i think you have a different set of conditions in place. >> i would like to go back to the relationship you have with chairman ginsler. i know he worked for you at goldman sachs.
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i believe that means there have been a couple of years that you have had a relationship. >> we had other interactions. he was on senator sarbanes staff when i was a senator. i was in contact with him on an occasional basis, but not on a frequent basis by any stretch of the imagination. >> would you describe your relationship as friendly? would you pick up the phone to call him to say how are you doing? >> we were not the kind of folks that were checking in on each other week to week, month to month, maybe not even year to year. i think one of the newspapers
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reported that he neither attended my recent wedding nor i attended a tragic loss in his family. >> thank you. in my last comment, i would like to associate myself with one of the comments he made very recently when you said that in retrospect, decisions made in prices are usually not very good decisions, and that -- in crisis are not usually very good decisions and that may have played a part in this. i would like to say that i believe that as well and that is why i believe that dodd-frank is detrimental to this country and the financial industry. >> the gentleman from north carolina is recognized. >> thank you. your repo to maturity
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transactions were total return swaps that were off the balance sheets. the head of the sec is now probing the account treatment and the disclosure. the financial accounting standards board recently decided that repo to maturity is the only kind of transaction to get off balance sheet treatment. this is a form of ruse used to dodge the federal return swap known to get around leverage. would you say that is correct? >> there is a lot in a statement. >> that is why i want to give you a chance to respond. >> my view is that a better analogy would be matchbook transactions where repurchase agreements were reversed.
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repurchase agreements were put on the books of a broker dealer or an institution as opposed to a return swap. you mentioned that you retain the price movement. you only maintain the price exposure to the extent that it indicates margin variation in the exchange. the total retain swap, and again, i do not want to be expert and i am certainly not expert with regard to the accounting issues on this, would reflect the price appreciation or depreciation. these rtm positions, both with respect to the ones held in government, or the euro sovereigns, had no price risk
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other than as implicated margins. as the analyst said, you did retain default risk. default and restructuring risk. but i do not think it is a clear analogy. some people would say total return swaps are a way to take price risk off the balance sheet. this was not a way to do that. this was a way to take matchbook risk to substantially less off balance sheet, but it is not an analogy i would identify with. >> thank you. the chair will now recognize the ranking member for a unanimous consent request. >> i have some questions that were submitted to me by miss captor, who spent a good part of
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the hearing today. without objection, i would like those questions to be submitted. have mr. corzine responded in writing. >> seeing no objections, the questions are submitted. seeing no other questions or requests, mr. corzine, thank you for your appearance today. you are now dismissed. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2011] >> you can see this and other hearings on our website. just go to next, our c-span series "the next, our c-span series "the


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